Lesson 15 — Activity 2:

The Pros and Cons of a Mixed Economy


Warm Up


Just like the market economy, there are advantages and disadvantages of a mixed economy. In this activity, you will take a look at both.



     

As you learned in the previous lesson, a mixed economy means that one part of the economy is being controlled and run by the government, while the other part is left to the free market.


Most economies of the countries all over the world are mixed, and they only differ in terms of intervention by the government. However, like most things in this world, this economic system also has its own share of advantages and disadvantages. Let us take a look at its pros and cons.


The advantages include:


  • In a mixed economy, there is equal distribution of control. This type of economy gives the government less regulation and control. This provides the private market with freedom to thrive, operate, expand, and grow.
  • People are able to make their own decisions.
  • It helps in increasing national production in a country.
  • There is a defined role for the government. With business left to private enterprises, the government can focus on the regulation of the market to improve economic stability and the country as a whole.
  • It helps lessen the amount of government control.
  • It allows regulation in areas with market failure.

The disadvantages include:


  • There is a challenge to find balance. One of the biggest issues that comes with a mixed economy is finding a balance between wealth equality and market freedom. This problem can lead to lack of social mobility and wide-scale poverty.
  • Sometimes the government can go too far. While sometimes the government does not go far enough, it can also go too far. Identifying the government’s exact role in private enterprises is sometimes a guessing game that results in unfair practices on both sides.
  • In a mixed economy, the government might limit company sizes because of rules regarding anti-trust laws and monopolies. A monopoly is when there is only one seller for a product or service.
  • There can be higher taxes in a mixed economy. More government intervention in the economy, of course, requires greater investment from the government, which largely comes from tax revenues. This can lead to negative consequences, such as decreased motivation in work, as employees see a large proportion of their earnings going to the taxation agency.
  • It can be hard to identify where the government will intervene.
  • It can lead to inefficient allocation and inequality of resources.

    • Self-check!

    Try This!

    Try the question below on your own first, and then click on the tab to check your answers! You can look back in the lesson to find the answers.


    List two pros and two cons of a mixed economy.



    Pros:
    • There is equal distribution of control.
    • People are able to make their own decisions.
    • It helps in increasing national production in a country.
    • There is a defined role for the government.

    Cons:

  • There is a challenge to find balance.
  • Sometimes the government can go too far.
  • The government might limit company sizes because of rules regarding anti-trust laws and monopolies.
  • There are higher taxes.