Mixed Economies
Chapter 2, Section 4
Mixed Economies
• Most
• No
economic systems today are mixed
one is strictly Centrally Planned/Free
Market
Why Mixed Economies?
• Free
Markets can’t solve all needs:
•
Education
•
Health care
•
Defense
•
Infrastructure
•
Social programs
• Adam
Smith even believed in some gov’t intervention. NOTHING IS
laissez faire.
Control vs. Freedom
• Balance
• Society
• Do
must be met: Individual/Gov’t
decides priorities & evaluates opportunity costs
you want to:
•
Subsidize the military?
•
Save endangered species?
•
Subsidize education?
•
Provide health care?
•
Etc…
Circular Flow for Mixed Economies
• Government
in the Factor Market
•
Government purchases land, labor, and capital
•
i.e., U.S. pays roughly 2.8 million employees $9.7 billion a year in wages
• Government
•
Governments purchase finished goods for their operations
•
•
in the Product Market
Cars, office supplies, defense hardware, benefits for employees
The government also provides finished products
•
i.e., roads
Gov’t Role in a
Mixed Economy
• the
government
purchases goods and
services in the product
market, and
• purchases
land, labor,
and capital from
households in the
factor market.
Level of Government Intervention
• Some
economies are very centrally planned (North
Korea, Cuba)
•
There are privatized goods and sales on the Black Market
•
China and Russia are in a state of transition.
•
The federally owned assets of the past are being privatized
• Others
are quite free (Hong Kong, US, Canada)
Hong Kong
• Hong
Kong: special administrative district of China
• World’s
freest market...
•
Few barriers on foreign trade
•
Open to foreign investment
•
Independently operated banks
Continuum of Mixed Economies
Continuum of Mixed Economies
Centrally planned
Free market
Iran
North Korea
Cuba
South Africa
China
Russia
France
Botswana
Greece
United Kingdom
Canada
Peru
Source: 1999 Index of Economic Freedom, Bryan T. Johnson, Kim R. Holmes, and Melanie Kirkpatrick
Hong Kong
Singapore
United States