Mixed Economy Model
Definition Mixed Economy- 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 aims. This type of economic system is less efficient than capitalism, but more efficient than socialism.
Features A mixed economy means that part of the economy is left to the free market, and part of it is run by the government. The public sector works alongside the private sector. Mixed economic systems are not laissez-faire systems. Mixed economies start from the basis of allowing private enterprise to run most business.
Advantages Mixed economies allow many more freedoms than command economies Mixed economies have a high level of state participation and spending Various restrictions on business are made for the greater good Uses of Taxation Uses of Subsidies A mixed economy can create greater equality and provide a safety net
Disadvantages Heavy taxes Excessive control over businesses can add costs and discourage enterprise Fear of nationalisation within the private sector Resources can end up being used in ways which aren t useful for the economy You could argue that as neither sector has full freedom, neither can operate at their full potential.
Friedrich Hayek Argued major problem with the economy is how people s actions are coordinated The market was spontaneous Increase in money supply would drive down interest rates making credit cheap Government guided by majority opinion made sense if that opinion was independent from the government People following their own interests is better than bureaucrats trying to constrict economic development Economy works best when individual risk takers are free to innovate and allocate their resources as they please and consumers can spend their money as they please
Quotes 'Emergencies' have always been the pretext on which the safeguards of individual liberty have been eroded. The mind cannot foresee its own advance. We must face the fact that the preservation of individual freedom is incompatible with a full satisfaction of our views of distributive justice. Friedrich Hayek
Keynes was a believer in monetarism John Maynard Keynes His major policy view was that the way to stabilize the economy is to stabilize the price level Keynes' best-known work was; 'The General Theory of Employment, Interest and Money Keynesian economics is a theory of total spending in the economy and its effects on output and inflation.
John Maynard Keynes Quotes Capitalism is the astounding belief that the most wickedest of men will do the most wickedest of things for the greatest good of everyone. The avoidance of taxes is the only intellectual pursuit that still carries any reward. If economists could manage to get themselves thought of as humble, competent people on a level with dentists, that would be splendid.
Mixed economy case study UK The UK economy although viewed as a mainly capitalist economy has government spending taking up 47.3% of GDP. Most decisions are made by the market In the UK, the emphasis is on letting the market make most decisions because of its high level of efficiency in responding to customer preferences. However, some decisions must be made by the government on behalf of society e.g. decisions about military spending, and public education. Businesses in the UK are normally grouped into private sector and public sector organisations. In conclusion the UK has a mixed economy, developed through free market and global economy, which is regulated by the Government to prevent market failure.