Please enable JavaScript.
Coggle requires JavaScript to display documents.
Mixed and market economic system - Coggle Diagram
Mixed and market economic system
Market Economic System
Advantages
Wide variety of high-quality goods and services at low prices (due to the large number of firms in the market, competing for customers and revenue)
Efficiency (Firms respond quickly to changes in the market, as all decisions are based on the price mechanism)
Increased innovation
Disadvantages
Risk of market failure
Resource allocation (what to produce, how to produce and who to produce for) is decided using the price mechanism, with minimum government intervention
Mixed Economic System
Combines government planning and ownership of resources with the use of the free market economic system to determine the allocation of resources in the country
control of resources in a
mixed economy is divided into private
and public sector
Most national economies combine a market economic system with government planning to allocate resources better
The best thing about the mixed economic system is that it can reduce social and economic welfare
The government intervenes in different markets using microeconomic policy measure ex subsidies and indirect taxes and regulations
Market Failure
Definition: A situation where there is an inefficient distribution of goods and services in the market
Consequences of market failure:
Public goods will not be provided.
Too few merit goods will be supplied and consumed.
Demerit good will be over supplied and consumed.
Some firms may exploit their consumers and employees.
Factor immobility obstructs the ability of firms to abstract resources efficiently.
Goods and services with significant external benefits may be under provided
Key terms for market failure
: Public Goods- Public buses, ellectricity, street light, roads and public infrastructure like govternment schools.
Merit goods: Long term benegits. Vaccines, helathcare, defence.
Demerit goods; Longe term harm for consumers. Cigarettes alchol. :
Causes of market Failure: Misallocations of resources or inefficient allocation of resources
Social Cost
Private cost+ External Cost
Private CostThe cost borne by those who are directly involved in the decision to consume or produce a product.
External Cost: From consumption of demerit goods by a third part.
Social Benefits
Private Benefit+ External Benefit
External Benefit: The benefit gained by an individual or firm as a result of an economic transaction but where they aren't directly involved in the transaction.
Private Benefit: Profit. Use of product by consumers