Mixed Economic System


DEFINITION of 'Mixed Economic System'

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.

BREAKING DOWN 'Mixed Economic System'

Most modern economies feature a synthesis of two or more economic systems. The public sector works alongside the private sector, but may compete for the same limited resources. Mixed economic systems do not block the private sector from profit-seeking, but do monitor profit levels and may nationalize companies that are deemed to go against the public good.

Mixed economic systems are not laissez-faire systems: the government is involved in planning the use of resources and can exert control over businesses in the private sector. Governments may seek to redistribute wealth by taxing the private sector, and using funds from taxes to promote social objectives.

While capitalism allows prices to be set by supply and demand forces and socialism fixes prices through central planning, mixed economic systems allow for prices in some sectors to fluctuate, while fixing other prices, such as energy.

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