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Chapter 12 – The mixed economy
Objectives of the chapter
Why are all
markets
“mixed
economies”?
•
Define private and public and use these to i.
explain that all economies are mixed.
•
Describe the key characteristics of a
economic systems, e.g. planned, market
and mixed economies.
ii.
Describe/outline: planned, market
and mixed economies
iii.
Explain/distinguish/draw: failure of
planned economies, market failure in
market economies, reason why all
economies are in fact mixed
economies,
•
Explain why planned systems failed
ultimately and what the failures of a
market system are.
•
Explain and give examples of types of
iv.
market failures (negative externalities, lack
of merit/public goods,
monopolies/oligopolies, common access
v.
resources)
•
Evaluate market systems using the
concepts market failure and allocative
efficiency.
Another chapter which we basically have covered earlier – so
let this be revision!
1) Public sector
a. A competitive market would fail to provide
enough (as in “optimal quantity”) merit goods
(health care and education) and public goods
(streetlights and police)
b. Thus, a public sector needs to exist in order to
provide these
2) Types of economic systems (recall that an econ system is
the “answer” to the basic econ problem
i. Command or planned economy – all FoPs
owned by public, distribution decided by
govt
ii. Market economy – price mechanism at
heart of what to produce and who gets it
iii. Mixed – neither of the above exist in a
pure manner, all economies are mixed
3) Problems with planning
a. How can govt possibly know demand?!
b. No price mechanism to incentivise producers.
c. How to keep costs low.
d. Best production method?
e. What price to set?
4) Efficiency
a. Lowest cost per unit; average cost, shows if firms
are efficient in production
b. Is there any waste, e.g. is S = D? Any excess S or
D means misallocation or allocative inefficiency
5) Problems with markets – market failure
a. Under-provision of public and merit goods
b. Negative externalities (e.g. pollution)
Define: private and public goods/
ownership
Evaluate/discuss: the extent to
which economic systems result in
allocative efficiency
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c. Monopoly power
d. Imperfect information
e. Common resources
Revision questions
1. Be prepared to define, explain and exemplify what a
planned, market and mixed economy is.
2. The relative successes and failures of planned and
market economies. (Evaluation!)
3. Define allocative efficiency and link to economic
systems.
4. Define and explain various ways in which markets
fail.
5. Why are in fact all economic systems mixed?
6. How might governments attempt to alleviate the
various forms of market failure?