Introduction to Business Economics

Mixed Economy

Did you know that all economies of the world are in essence mixed economies! Capitalism and socialism are both two ends of the spectrum. In the real world, we take the middle road. Combining features of both the capitalist economy and the socialist economy we arrive at a mixed economy. Let us look at some features and advantages.

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Mixed Economy

As the name suggests a mixed economy is the golden combination of a command economy and a market economy. So it follows both price mechanism and central economic planning and oversight.

The means of production are held by both private companies and public or State ownership. And while market forces decide the price, demand, supply, etc there is some government oversight to prevent monopolization and discrimination.

The idea behind a Mixed Economy is to tackle the demerits of both a capitalist economy and a socialist economy and come up with a unique system. It appreciates the concept and the freedom of private ownership of properties and resources.

But at the same time, it understands the disadvantage of unchecked capitalism. Hence it proposes government oversight and economic planning so there is no discrimination against the poorest citizens.

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Features of Mixed Economy

  • Coexistence of All Sectors: In a mixed economy all three sectors coexist in harmony, i.e. private sector, public sector, and joint sector. The joint sector is jointly run by the government and private companies, with at least 51% ownership belonging to the state.
  • Cooperative Sector: In a mixed economy another sector exists, the cooperative sector. The main aim of the formation of this sector is so that the government can provide financial assistance to cooperative societies involved in warehousing, agricultural, dairy industry, etc.
  • Freedom and Control: Here all individuals have the freedom to produce goods and products, hold property, choose their occupation and choose or demand products/services they want. But to keep a check on monopolistic practices and discrimination of the lower sectors of society the state maintains some control.
  • Economic Planning: In a mixed economy we have a central planning authority. All sectors of the economy follow the economic plan of the state to achieve various targets and goals. The plan is not rigid but more of a general guideline for economic growth and prosperity of the nation.
  • Social Welfare: One of the main aims of a mixed economy is social welfare. It aims to reduce the wealth gap in the country and fight the inequalities of our society. The aim is to reduce poverty and unemployment. And at the same time also improve social security, public health care, public education system, etc.

Merits of a Mixed Economy

  • Freedom the citizens enjoy. Especially the economic freedom to ownership of property and choice of goods and services.
  • Ownership and existence of private producers also increase capital formation in the country. There is an incentive to do better and innovate as well.
  • Price mechanism prevails. So the allocation of resources is more scientific and beneficial to the economy.
  • Also enjoys the advantages of central economic planning. This will help the economy grow rapidly and in the correct direction.
  • There is healthy competition in the market. There is no cut-throat competition and adverse tactics due to government oversight. Also, there is no absolute lack of competition which is disadvantageous,

Solved Example on Mixed Economy

Q: Which of the following systems does India follow?

  1. Command
  2. Market
  3. Mixed
  4. None of the above

Ans: The correct option is C. India is a mixed economy. Here all the sectors (private, public, joint) exist in the economy. We have central economic planning in India as well as the practices of free market and price mechanism.

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One response to “Nature of Business Economics”

  1. Folarin Uthman says:

    This is a very stupid


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