The mixed economy Flashcards
What is the definition of a mixed economy?
A mixed economy is an economic system that combines elements of both the public and private sectors, where resources are allocated by both market forces and government intervention.
What are the definitions of the public sector and private sector?
The public sector is the part of the economy owned and controlled by the government, focusing on providing public goods and services. The private sector is owned and controlled by individuals and businesses, aiming to make a profit.
What are the differences between the public and private sectors in terms of ownership, control, and aims?
Ownership: Public sector is owned by the government; private sector is owned by individuals or businesses.
Control: Public sector decisions are made by the government; private sector decisions are made by business owners.
Aims: Public sector focuses on social welfare; private sector focuses on profit maximization.
How are the problems of what to produce, how to produce, and for whom to produce solved in a mixed economy?
In a mixed economy:
What to produce: Determined by both market demand and government priorities.
How to produce: Market forces decide methods, but the government can regulate to ensure fairness or sustainability.
For whom to produce: Resources are allocated based on market mechanisms and government policies to ensure equity.
What is market failure?
Market failure occurs when resources are inefficiently allocated, leading to a loss of economic welfare.
Why might governments need to intervene due to market failure?
Governments intervene to correct inefficiencies, provide public goods, address externalities, and ensure equitable distribution of resources.
What are public goods?
Public goods are goods that are non-excludable (cannot exclude anyone from using them) and non-rivalrous (one person’s use does not reduce availability for others), leading to the free-rider problem.
How does the free-rider problem relate to public goods?
The free-rider problem occurs because people can benefit from public goods without paying for them, leading to underproduction in a market economy.
What is the role of the public and private sectors in the production of goods and services?
The public sector provides essential goods and services (e.g., healthcare, education) for societal welfare, while the private sector produces goods and services based on consumer demand and profit motives.
What determines the relative importance of the public and private sectors in different economies?
The importance varies based on the level of government involvement in the economy, cultural values, and economic policies of a country.
What is privatisation?
Privatisation is the process of transferring ownership and control of a business or industry from the public sector to the private sector.
What are the effects of privatisation on consumers?
Consumers may benefit from improved efficiency and lower prices but could face reduced access to essential services.
What are the effects of privatisation on workers?
Workers may face job losses or changes in working conditions due to increased focus on efficiency and profit.
What are the effects of privatisation on businesses?
Businesses gain greater flexibility and potential for innovation but may focus more on profit than public welfare.
What are the effects of privatisation on the government?
Governments can reduce their financial burden and raise revenue from selling assets but lose control over essential services.
