Economic Systems: Market & Mixed

A mixed economic system is one in which both the private sector and the public sector (government) allocate resources. Most goods and services are left to the market, but the government intervenes where the market on its own would fail.

The mixed economy is the most common real-world system; almost every country is a mixed economy of some kind. The balance varies: some governments intervene heavily, others lightly.

In a mixed economy:

• The private sector / private firms produce most goods and services through the price mechanism, motivated by profit.
• The public sector / government provides goods the market under-supplies (public goods, merit goods), redistributes income through taxes and benefits, and regulates the harmful side-effects of private activity.

Arguments for the mixed economic system

• Keeps the strengths of the market. Competition, choice, the profit incentive and efficiency are retained for most goods.
• Corrects market failure. The government provides public goods and merit goods, taxes goods with external costs, and subsidises goods with external benefits.
• Taxation and redistribute income; state healthcare and education give the poor access to essential services.