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.

 

  1. No results found.
Related Articles
  1. Insights

    Political Ideologies And Stocks

    Learn how different political systems affect emerging market stocks.
  2. Insights

    Pros and Cons of Capitalist vs Socialist Economies

    Capitalism relies on the markets. Socialism, on government planning. Each system has its pros and cons.
  3. Personal Finance

    Market Economy

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

    Can Socialism Work In America?

    Capitalism has its shortcomings, but pure socialism is not the answer. The American system of capitalism with socialistic touches might be good for the US.
  5. Retirement

    How Socialism Differs From Capitalism

    Socialism is an economic and political system based on the public ownership of the means of production.
  6. Insights

    What Exactly is a Socialist Economy?

    Socialism's role in the world has changed dramatically in the last several decades.
  7. Insights

    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.
  8. Insights

    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.
  9. Insights

    What Is Fiscal Policy?

    Learn how governments adjust taxes and spending to moderate the economy.
  10. Retirement

    Introduction to Social Security

    You've probably contributed to this fund, but will you reap the benefits? Find out here.
Hot Definitions
  1. IRS Publication 970

    A document published by the Internal Revenue Service (IRS) that provides information on tax benefits available to students ...
  2. Federal Direct Loan Program

    A program that provides low-interest loans to postsecondary students and their parents. The William D. Ford Federal Direct ...
  3. Cash Flow

    The net amount of cash and cash-equivalents moving into and out of a business. Positive cash flow indicates that a company's ...
  4. PLUS Loan

    A low-cost student loan offered to parents of students currently enrolled in post-secondary education. With a PLUS Loan, ...
  5. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  6. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
Trading Center