Advantages and Disadvantages of a Mixed Economy

Mixed economic system is one which incorporates the elements of both a free market system and centrally planned market system. In this case, the interaction of market system such as demand and supply are allowed to guide the market but the government interferes by controlling some activities in the market through a planned allocation and production of some resources which are viewed as not being adequately produced or controlled by the free market. For instance, in a mixed economic system the production of infrastructure may not be produced by the free market because they are publicly owned amenities which the private sector cannot afford to provide. Free markets may also lead to production of harmful products, leading to the need for a control mechanism.

Advantages of Mixed Economic System

Mixed economic system enhances producers and consumers sovereignty while at the same time allowing the government to regulate and/or stop the production and consumption of harmful products. In this case, the consumers and producers have the freedom to choose what to consume and produce but only to the extent that they cannot indulge in the production and consumption of harmful products. For example, consumers and producers can consume and produce any legal product or service such as household good and farm product for as long as it does not harm them. The government then prevents them from drug trafficking. This gives the consumers and the producers to remain healthy and keep the environment clean and keep the others healthy as well.

A mixed economic system reduces the cost of business activities and increases productivity because through mixed economy, the government carries out cost benefit analysis and provides public goods which could have not otherwise been produced by the private sector. These public goods such as health facilities and infrastructure enable businesses to operate effectively (Gerber, 2007). For example, the construction of an irrigation scheme reduces the cost that farmers would have incurred in production of food products such as rice, fruits and vegetables if they were to rely on natural rainfall.

A mixed economy also reduces income inequality and encourages the existence of monopolies which are under close supervision of the government. Through taxation and other interference policies in the market, the government is able to distribute income and reduce income inequality. The government may also supervise and control monopolies in the market so as to reduce distortions occasioned by monopolies. For example, the government may set limits on the prices which monopolies should not exceed in their pricing.

Disadvantages of a Mixed Economy

One of the disadvantages of a mixed economy is incidence of Bureaucracy and favoritism. These factors may be prevalent in a mixed economy because the government officials have the power to influence the economic system. For example, the government may award contracts of providing public goods on the basis of favoritism. This may be through allocation of such contracts to the friends and relatives of the government officials and implementers of government projects. These individuals may even be incompetent and may make the projects to fail when in fact there could be other individuals who would have done it better.

Mixed economy may also lead to the production and provision of goods and services for the benefit of the society rather than the economy. In this case, the society objectives are met but corporate profits are sacrificed. This may reduce the level of growth in the private sector and the market may not expand. As a result, investment levels reduce, economic growth declines and economic development also dwindles. For example, if the government regulates the pricing of monopolies, such monopolies may not make enough profits and as a result fail to grow.

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