2.11 Mixed Economic System Flashcards
Define a mixed economic system
A market system where both the market and government coincide
List 2 features of a mixed economic system
- Both public & private sector exist
- Planning and final decisions by govt. while allocation of resources by the market
List 3 advantages of a mixed economic system
- Govt. can provide public & merit goods
- Govt can prevent monopolies/externalities
- Govt. can provide jobs to public sector to increase job security
List 3 disadvantages of a mixed economic system
- Taxes will be imposed, thus higher prices and less work incentive
- Laws/Regulations can cause higher costs of production
- Public sector is inefficient as they have no profit motive
List 3 ways market failure in a mixed economic system can be corrected
- Regulation
- Provision of merit/public goods
- Taxation
Explain how regulation corrects market failure
the government can make laws that regulate market activity, or impose price control
List 2 types of price control
Minimum Price (Floor Price)
Maximum Price (Ceiling Price)
What is minimum price used for?
Set to control a decreasing tendency of price.
(eg. The minimum wage laws in countries)
What is maximum price used for?
Set to control an increasing tendency of price.
(eg. usually set on rent (this is called rent control), to ensure that low-income tenants can afford to rent homes)
How does provision of merit & public goods correct market failure?
Since there is little incentive for the price mechanism to supply these goods, governments usually provide them
How does taxation correct market failure?
Imposing a tax on products (indirect taxes) with negative externalities can discourage its production and consumption
