Mixed Economy


A mixed economy combines the best features of capitalism and socialism.

Thus mixed economy has some elements of both free enterprise or capitalist economy as well as a government controlled socialist economy.

The public and private sectors co-exist in mixed economies.

The main characteristics of a mixed economy are as follows:

[1] Co-existence of public and private sectors.

The private sector consists of production units that are owned privately and work on the basis of profit motive.

The public sector consists of production units owned by the government and works on the basis of social welfare.

The areas of economic activities of each sector are generally demarcated.

Government uses its various policies e.g. licensing policy, taxation policy, price policy, monetary policy and fiscal policy to control and regulate the private sector.

[2] Individual Freedom

Individuals take up economic activities to maximize their personal income.

They are free to choose any occupation and consume as per their choice.

But producers are not given the freedom to exploit consumers and labourers.

Government puts some restrictions keeping in mind the welfare of the people.

For instance, government may put restrictions on the production and consumption of harmful goods.

[3] Economic Planning

The government prepares long-term plans and decides the roles to be played by the private and public sectors in the development of the economy.

The public sector is under direct control of the government as such production targets and plans are formulated for them directly.

The private sector is provided encouragement, incentives, support and subsidies to work as per national priorities.

[4] Price Mechanism

Prices play a significant role in the allocation of resources.

For some sectors the policy of administered prices is adopted.

Government also provides price subsidies to help the target group.

The aim of the government is to maximize the welfare of the masses.

For those who cannot afford to purchase the goods at market prices, government makes the goods available either free of cost or at below market (subsidized) prices.

Thus in a mixed economy people at large enjoy individual freedom and government support to protect the interests of weaker sections of the society.

Indian economy is considered a mixed economy as it has well defined areas for functioning of public and private sectors and economic planning.

Even countries such as USA, UK, etc. which were known as capitalistic countries are also called mixed economies now because of active role of their government in economic development.