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. Personal Finance

    Pros and Cons of Capitalist vs Socialist Economies

    Capitalism relies on the markets. Socialism, on government planning. Each system has its pros and cons.
  2. Economics

    Market Economy

    In a market economy, economic decisions and prices are determined by market forces rather than by central planning.
  3. Economics

    Socialist Economies: How China, Cuba And North Korea Work

    What is socialist economics in the context of Cuba, China and North Korea?
  4. Economics

    Main Characteristics of Capitalist Economies

    Commerce is based on the principles of capitalism, but there are few, if any, examples of pure capitalism except in theory.
  5. Economics

    The Nordic Model: Pros and Cons

    The Nordic countries' (Sweden, Norway, Finland and Denmark) high living standards and low income disparity have captured the world’s attention.
  6. Retirement

    Introduction to Social Security

    You've probably contributed to this fund, but will you reap the benefits? Find out here.
  7. Retirement

    When Do I Stop Paying Social Security Tax?

    Almost never, unless you belong to one of these special groups.
  8. Economics

    The Difference Between Communism and Socialism

    Communism and socialism are economic and political structures that promote equality and seek to eliminate social classes.
  9. Retirement

    Americans Are Living Longer, but Social Security Is Not Catching Up

    Find out how Social Security really works, why the system is in trouble and whether retirees are simply living too long for Social Security to remain viable.
  10. Entrepreneurship

    How Social Venture Capital Is Changing the World

    Learn what social venture capital is and the ways in which it differs from traditional venture capital. Identify two leading social venture capital firms.
Hot Definitions
  1. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  2. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  3. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  4. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  5. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  6. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
Trading Center