NAME OF THE STUDENT : MG MOKOTI

STUDENT NUMBER : 223207620

TUTOR’S NAME : ZAKWE THANDOLWETHU GROUP3

MODULE : ACCOUNTING STUDIES 100

ESSAY ASSIGNMENT 2 : MIXED ECONOMY

WORDS COUNT : 1051 excluding references.

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An economic system is a way of allocating resources to answer the three fundamental
questions of what to produce, how to produce it and for whom. (Chapter 1 Basic economic ideas
and resource)

Three main economic system

 Planned economy.
 Market economy.
 Market economy.

MIXED ECONOMY

A mixed economy is a golden means of capitalist economy and socialist economy. It is an

economic system where price mechanism and economic planning are used side by side.
(“Mixed Economy - Academia.edu”) Mixed economy it is a mixture of market economy and
planned economy, under market economy is one in which resources are allocated by means of
the price mechanism, consumers indicate what they are willing and able to buy through the
price they are prepared to pay(Dr Sanjeev , 2013). Private sectors firms respond to changes in
consumer taste by altering what they produce(Dr sanjeev,2013). Property is privately owned
and the government’s role in such an economy is minimal. Among the advantages claimed for
the market economy are consumer sovereignty, incentives for workers and firms to be efficient
and innovative, and lack of bureaucracy(Derthick & Martha, 1985).

Disadvantages of a market economy include an inequitable distribution of income, risk of

unemployment of resources , underconsumption of merit goods and services and over
consumption of demerit goods and services, lack of provisions of public goods, information
failure and abuse of power e.g. Eskom. Planned economy is one in which the government
makes most of the decisions on how resources are allocated. Property is state owned, and most
workers are employed in state owned enterprises. (A LEVEL Economics Revision Guide | PDF
- Scribd) The private sector role in such an economy is minimal.

The advantages of planned economy.

 Full employment
 Avoidance of wasteful duplications
 An equitable distribution of resources of resources

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  Consideration of externalities
 Provisions of merit goods and public goods

Disadvantages of planned economy are that economic activities are slow responses to changes
in consumers demand, too much bureaucracy, a lack of incentives and too much concentration
on capital goods(Sanford, 2017). In a mixed economy both the private and public sectors play a
key role. Resources are allocated using both price mechanism and state planning, which is the
market economy and planned economy. A mixed economy seeks to gain the advantages of both
a market and planned economy whilst seeking to avoid the disadvantages. (Economic Systems:
Market and Mixed Economies - Your Article Library) How successful it is depending on the
effectiveness of the government policies and how efficient the private sector is.

STRENGTH OF MIXED ECONOMY

1. Effectiveness
The free market has proven to be more efficient at managing the economy that governs
it. Part of this is their incentive to cut costs and maximize profits. This leads to new
innovations all the time. These new innovations often free up resources that can then be
used for the good of the entire country’s population. (Mixed Economy - Academia.edu)

2. Resources
Since a mixed economy incorporates the good features of both planned and market
economy, the resources of the economy are utilized in the best possible manner. The
price mechanism, the profit motive, and the freedoms of consumption, production, and
occupation led to the efficient allocation of resources within the economy(Mixed
Economy: Features, Merits and Demerits - Your Article Library). But were the
possibility of mal allocation of resources appears, the state regulation and control
rectifies it. Thus shortages are avoided, productive efficiency increases, and cyclical
fluctuations are eliminated.

3. Equality of Control
Unlike in planned economies where the government is primarily in charge, the mixed
economy has less government control and regulation. This provides the private market
with freedom to operate, grow, expand, and thrive(Dr Sanjeev, 2013). Because most
business can be left in
the hands of a private economy, a great deal of services can be taken care of by groups

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 other than the government(Mixed Economy - Academia.edu). Those services that private
companies cannot or should not benefit from, like libraries, utilities, roads, hospitals, and
social security can be managed by the government.

4. Social Welfare

In mixed economy system, the main priority is given to social welfare through effective

economic, planning. The private sector is controlled by the government. Production and

price policies of the private sector are determined to achieve maximum social welfare(Schiler &
Bradley).

WEAKNESSES OF THE MIXED ECONOMY

1. Competition

One of the reasons that mixed economies are appealing is because they balance the free

market and the government. Often, however, these opposing forces become so entrenched

in their battles that it leads to a stalemate. This leads to a decline in the economy while

the powerhouses fight for control(McGraw, 2010).

2. Non-Cooperation

The experience of the working of mixed economies reveals that the public sector and the

private sector does not agree completely with one another. The private sector is treated like a

stepchild and groans under the various restrictions imposed upon it by the state(Dr Sanjeev,
2013). The

private sector is taxed heavily, while the public sector is given subsidies and preference

over the former in the supplies of inputs. Thus a sense of bitterness and non-cooperation (Mixed
Economy - Academia.edu)

develops between the two sectors. The public sector operates on the interests of the people and
the private sector operates on the interest of income or making income and profits is the main
goal.

3. Un-stability or In-stability

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Some economists claim that mixed economy is most unstable in nature.(Merits and Demerits of
Mixed Economy - Economics Discussion) The public sector gets maximum benefits whereas
private sector remains controlled. The experience of the working of the mixed economic system
in the developed countries also reveals that they have not been able to remove economic
fluctuations(Mixed Economy - Academia.edu). This is because of the improper mixture of
capitalism and socialism. The private sector is allowed to operate freely under a loose system of
government regulations and controls.

4. Excess Taxation

Another problem is that governments may limit the size of large companies due to rules
regarding monopolies and anti-trust laws. In addition, these companies may be harshly taxed to
support other aspects of the economy. Without safeguards put in place, the enterprising spirit
may be squashed. More state intervention in the economy, of course, requires greater
investment from the government, which comes from tax revenues. (Mixed Economy -
Academia.edu) Therefore an argument against intervention is that the more there is, the more
people must be taxed- and higher income tax for example, is claimed to be a cause of a
reduction in motivation to work.

Public expenditure policy should be strengthened in the following areas: striving to reduce
government spending as a share of GDP, but their absolute size increases proportionally to
growth. Focus on the restructuring of government spending to enhance the stimulating functions
and directing them towards the realization of strategic objectives. budget-spending policy to
comply with the economic principle. Targeted pooling of a multi budgetary system and create
budget-expenditure instruments and mechanisms of influence and control at national, sectoral,
and regional level. Introduction and implementation of new budgetary technologies to improve
the budget process(Derthick & Martha, 1985).

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References
Derthick, M. ,. (1985). The politics of deregulations . The brookings institutions .

IKEDA, S. (1997). Dynamics of the econmomy towards a theory of intervantion .

Kausheick, D. s. (2013). International research journal of management , sociology and humanity. mixed
economy, 6.

Schiller, B. M. (2010). The micro economy today . mixed economy, 15-35.