Chapter 2: Economic Systems Section 4

What are the characteristics of a mixed economy?

- A mixed economy is characterized by: • A market-based economy with some government intervention • Government helps societies meet needs that would be too difficult for them to meet under a totally free market economy, such as education • Government protects property rights and ensures that exchanges in the marketplace are fair

North Korea and China

-North Korea represents one extreme of the continuum. - North Korea's economy is almost totally dominated by the government. The government owns all the property and output equipment. • China, on the other hand, is closer to the center of the continuum because China is going through an economic transition toward privatization of state-owned firms.

American Economic Freedom

-The United States enjoys a high level of economic freedom. - Foreign investment and free trade is encouraged - The banking industry operates under relatively few restrictions - Foreign-owned banks have few additional restrictions

The United States

-The United States is a mixed economy whose foundation is the free market. • It is characterized as a free enterprise system.

Government in the Market

Governments buy labor in the factor market to have employees help run its programs. • Governments purchase goods and services from firms in the product market. • Governments also collect taxes from both households and firms.

Hong Kong

Hong Kong represents one of the world's freest markets. - In Hong Kong, the private sector rules. - The government protects private property and rarely interferes in the free market, aside from establishing wage and price controls on rent and some public services.

comparing mixed economies

Most modern economies are mixed economies. - The figure below shows a continuum of mixed economics in today's world

Government Intervention

The American government intervenes in the economy by: - Keeping order - Providing vital services - Promoting general welfare • Federal and state laws protect private property. - The marketplace operates with a limited degree of government regulation.

What is one reason the government plays a role in the economy?

The government: • Provides national defense and public education • Protects private property • Ensures fair exchanges in the marketplace

mixed economy

a market-based economic system in which the government is involved to some extent

economic transition

a period of change in which a nation moves from one economic system to another

free enterprise system

an economic system in which investments in firms are made in a free market by private decision rather than by state control

private property

property that is owned by individuals or companies, not by the government or people as a whole

laissez faire

the doctrine that government generally should not intervene in the marketplace

privatization

the process of selling businesses or services operated by the government to individual investors, and then allowing them to compete in the marketplace

The Rise of Free Markets

• Even free market thinkers like Adam Smith recognized the need for a limited degree of government involvement in the economic marketplace. • In a mixed economy, the market is free but has a certain degree of government control.