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CIE IGCSE Economics Your notes

2.11 Mixed Economic System

Contents
2.11.1 Characteristics of a Mixed Economic System

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2.11.1 Characteristics of a Mixed Economic System

Your notes
Characteristics of a Mixed Economic System
Any economic system needs to decide how to answer the three fundamental economic
questions (see: 2.2.1 The (Free) Market System)
What to produce? More weapons for the military or more schools to educate the children?
Who to produce for? Only those who can afford to pay for it? Or for everyone in society?
How to produce it? Should more labour be used or should the economy focus on using
technology instead?

A mixed economic system is a blend of a market & planned economy

Individuals, firms & the government own factors of production & distribute goods/services
In reality, almost every country in the world operates as a mixed economic system
Some countries have more government intervention than others e.g. China has more
intervention than the USA
The higher the level of government intervention, the more the economy will lean towards
operating like a planned economy

Governments intervention is necessary for several reasons

A diagram showing several reasons for government intervention in mixed economic systems

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To correct market failure: in many markets there is a less than optimal allocation of resources
from society's point of view
In maximising their self-interest, firms & individuals will not self-correct this misallocation of Your notes
resources & there is a role for the government
Governments often achieve this by influencing the level of production or consumption

Earn government revenue: governments need money to provide essential services, public and
merit goods
Revenue is raised through intervention such as taxation, privatisation, sale of licenses (e.g. 5G
licenses), & the sale of goods/services

Promote equity: to reduce the opportunity gap between the rich & poor

Support firms: in a global economy, governments choose to support key industries so as to

help them remain competitive

Support poorer households: poverty has multiple impacts on both the individual & the
economy
Intervention seeks to redistribute income (tax the rich & give to the poor) so as to reduce
the impact of poverty
As we have seen in 2.10.3 Government Intervention to Address Market Failure, four of the most
commonly used methods to intervene in markets are indirect taxation, subsidies, maximum
prices, & minimum prices

Additional methods of intervention include regulation, nationalisation, privatisation, & the State
provision of public goods

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