Mixed Economy Course Name: Principles of Microeconomics

Course Code: ECO101Section: 03

Course Instructor: Gazi Quamrul Hasan Senior Lecturer

Department of Economics East West University.

Group Name: Gebian [2nd group]

Presented by:1. Bitali Islam ID: 2015-1-77-0172. Md. Shabab Mehebub ID: 2015-1-77-0043. Suraiya Akhter ID: 2015-2-77-0114. Mohammad Nabil Hossain ID: 2015-1-77-0255. Richita Islam ID: 2015-1-77-049

Introduction

-A mixed economic system is an economic system that features characteristics of both capitalism and socialism.

- A mixed economic system allows a level of private economic freedom in the use of capital, but also allows for governments to interfere in economic activities in order to achieve social aim.

Mixed economy=Capitalism + Socialism

Features of mixed economy

• Some private businesses, driven by profit. Some controlled by government

• Private: mobiles, cars, computers• Essential services: police, fire service, defence, social services.

Goods and services which can benefit both consumer and society(merit goods)

• Taxes to the government• Government places limits on the nature of business activity:

restricting monopoly, control pollution from factories• the ownership of goods by both private and government/state-

owned entities.

Some characteristics of a mixed economy

to possess means of production (farms, factories, stores, etc.)

to participate in managerial decisions (cooperative and participatory economics)

to travel (needed to transport all the items in commerce, to make deals in person, for workers and owners to go to where needed)

to buy (items for personal use, for resale; buy whole enterprises to make the organization that creates wealth a form of wealth itself)

to sell (same as buy)

to hire (to create organizations that create wealth)

to fire (to maintain organizations that create wealth)

to organize (private enterprise for profit, labor unions, workers' and professional associations, non-profit groups, religions, etc.)

to (communicate (free speech, newspapers, books, advertisements, make deals, create business partners, create markets)

to protest peacefully (marches, petitions, sue the government, make laws friendly to profit making and workers alike, remove pointless inefficiencies to maximize wealth creation)

private sector business activity encouraged.

state control resources in supply of certain goods and services.

taxes used to collect revenue to pay for state goods and services.

Some characteristics of a mixed economy

Circle flow model of mixed economy

Transcript of circle flow model

Government buys land, labor, and capital from households in the factor market .

Government in factor market - governments purchase goods and services in the product market. - governments also provide certain goods and services through the factor resources that they combine. 

Government in the Product Market -buildings and office supplies,telephones,computers and fax machines.

Example of mixed economical country

This system usually begins by authorizing private enterprises to run the majority of businesses before the government intervenes with specific areas of economics, such as inflation protection and taxes. Great examples of countries running on mixed economy are

• Sweden• Iceland • UK• France• US • China • Russia • Hong Kong

Pros and cons of mixed economy

Equal Distribution of Control - Unlike command economies that put the government primarily in charge, a mixed economy gives the government less regulation and control. This provides the private market with freedom to thrive, operate, expand and grow.

More Efficiency for Private Firms -As stated above, most of the business is left to the private firms, so these organizations are more likely to be efficient compared to groups that are controlled by the government, as they have profit incentive for being innovative and for cutting costs.

Freedom for Private Enterprise to Thrive On Their Own -In most cases, private companies can perform public service jobs more efficiently than the government itself. In addition, businesses can allow people to enjoy financial rewards for hard work. 

More Job Investments Coming In - For private companies to improve profits, they often will not try to increase income, but decrease expenditure instead by cutting down on employment. These days, this comes not only in the form of job cuts, but outsourcing as well.

Greater Chance for the Government to Implement Good Policies - This type of economic system is known for allowing government regulations in areas where market failure is experienced. This means that a region will have more space to develop and grow to attain economic success.

Safe Haven from Poverty - A mixed economy can help create improved equality and can offer safety net that will prevent the people in a certain country from suffering absolute poverty. It even allows people to enjoy financial rewards of hard work and entrepreneurship.

Pros and cons of mixed economy

Difference between Mixed economy and Capitalism

Capitalism embraces private ownership of institutions, and discourages government intervention in the economy. The main goal of capitalism is profit.

Not all countries embrace capitalism wholly. Some countries choose to maintain a balance between private and government ownership. Such countries utilize the idea of the mixed economy.

The mixed economy is a balance between socialism and capitalism. As a result, some institutions are owned and maintained by the government, while others are owned by the private sector.

The mixed economy allows economic participation from both the private sector and the government. However, mixed economy is still biased towards capitalism.

Differences between Mixed economy and Socialism

The main difference between a mixed economy and a socialist economy is that the latter only uses socialistic principles while a mixed economy may use capitalistic and socialistic principles.

A mixed economy is defined as an economic system consisting of a mixture of either markets and economic planning, public ownership and private ownership , or free markets and economic interventionism.

Socialism is an economic system where the ways of making money (factories, offices, etc.) are owned by a society as a whole, meaning the value made belongs to everyone in that society, instead of a small group of private owners.

Role of government in mixed economy

Governments regulate mixed economies by formulating rules and regulations to protect the producers and consumers in the market.

Regulation also serves as a means of ensuring that mixed economies utilize economic resources efficiently and allocate scarce resources in a scientifically responsible manner.

Governments plan the necessary production targets in private industries while protecting the defense, public utility services and heavy industries. Economic inequality is also minimized in a mixed economy because income gets redistributed through taxation and government subsidies.

Role of government in mixed economy

Although the government does have jurisdiction over the activities that take place in a mixed economy, the amount of control the government has is comparably less than in a socialist economy, where most of, if not all of, the market is controlled by the government.

Such economies rely heavily on tax revenues and are less likely to benefit from price signals or discipline imposed by market forces. It is for this reason that economists claim that mixed economies are more efficient than economies with substantial government ownership.

Advantages

• State provides the essential services.

• Private sector encouraged for profits.

• Competition keeps prices low.

• Consumer choice.

• Inefficient business behavior controlled.

• Greater Chance for the Government to Implement Good Policies.

• More Job Investments Coming in Safe Haven from Poverty.

Disadvantages

• Heavy taxes reduce incentives to work hard or make profits.

• Less efficient than private sector.

• Excessive control over business activity can add costs and discourage enterprise.

•  Challenge of Finding a Balance.

• Government Going Too Far.

• Limited Corporate Size.

Thank You!