Mixed Economic System



Next video:
Loading the player...

Many of today’s democracies operate under a mixed economic system, which combines aspects of capitalism and socialism. A mixed economy is designed to drive economic activity through capitalist ventures, while money is collected via taxation to maintain a nation’s infrastructure and offer public services, such as primary education, social welfare policies and health insurance.

The belief is that government intervention can ensure fair market competition, and humane labor standards, and offer economic safety nets for businesses and individuals, such as subsidies and minimum wage laws. Capitalism in its purest form has peaks and valleys, which can lead to financial crises, such as mass unemployment and economic depressions. Governments in mixed economies introduce fiscal or monetary policies that are intended to stimulate economic activity during economic downturns. Some examples include government work programs, quantitative easing and corporate bailouts.

Essentially, mixed economies encourage the private sector to seek profits, but monitor profit levels, and redistribute wealth in order to promote social objectives that maintain an agreeable standard of living for its citizens.

Pure capitalism dictates that the law of supply and demand sets the prices for goods and services. Pure Socialism fixes the prices through central planning. A standard mixed economy, however, allows for prices in some sectors to fluctuate with supply and demand, while it fixes prices in sectors such as energy.

The term “Mixed Economy” has been applied to a variety of nations with a hybrid system of socialist and capitalist policies. The Mixed Economy label has been applied to Western Democracies such as the United States, Canada and various Western European nations, as well as Nordic Social Democracies, which have high taxation and greater wealth redistribution for social aims; even a Communist nation like Cuba is considered to have a mixed economy by some economists.

 

Related Articles
  1. Economics

    Nominal vs. Real GDP

    GDP stands for gross domestic product and is the measure of the total economic output of the goods and services of a country.
  2. Investing

    Foreign Direct Investment

    Foreign Direct Investment is a form of cross-border investment.
  3. Economics

    Fiscal Deficit

    A shortfall that occurs when government spending exceeds government revenues, or taxes.
  4. Economics

    Monetary Policy

    Monetary policy is a central bank’s actions that influence the country’s money supply and the overall economy.
  5. Economics

    Wealth Effect

    The wealth effect is a psychological phenomenon that causes people to spend more as the value of their assets rises. The premise is that when consumers' homes or investment portfolios increase ...
  6. Economics

    Basic Concept Of Absolute Advantage

    Absolute advantage is the ability of an individual, country or company to produce a good or service at a lower cost than any competitor. An entity with an absolute advantage requires fewer inputs ...
  7. Economics

    Capitalism

    Capitalism is an economic system in which the free market alone controls the production of goods and services. Its key features include open competition, the profit motive of producers and private ...
  8. Personal Finance

    The History Of Capitalism: From Feudalism To Wall Street

    Find out how the economic system we now use was created.
  9. Options & Futures

    Financial Capitalism Opens Doors To Personal Fortune

    The Industrial Revolution introduced a new age of investing and financial self sufficiency.
  10. Stock Analysis

    Has SanDisk Found a Bottom?

    Learn whether SanDisk has found a bottom. SanDisk is a manufacturer of memory-based products used in all sorts of technology products.

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!