Chapter 2 Section 4: Mixed Economy
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Chapter 2 Section 4: Mixed Economy
Objectives: • We will analyze mixed
economies and see the
tension between free
market enterprise and
government involvement.
• (Psa 24:1) A Psalm of David.
The earth is the LORD'S, and the
fulness thereof; the world, and
they that dwell therein.
Laissez faire
• Early free market thinkers
such as Adam Smith believed
that, left alone the free
market would provide the
greatest benefit for
consumers and raise the
standard of living.
Need for government intervention • Needs of modern society would be difficult to
meet in the marketplace.
• Governments supplies some needs in order to ensure that all members of society can benefit.
• This can not be accomplished by the private sector.
• To insure all members of society receive a basic education, the government provides public schools, highways, law enforcement etc.
• Governments also play a role in the economy by protecting property rights.
Need for government intervention
• For instance, the Fifth and Fourteenth Amendments to the Constitution declare that no person may be deprived of life, liberty, or property without due process of law.
• These amendments protect private property or property owned by individuals or companies and not by the government or the people as a whole.
• Government try to make sure that exchanges in the marketplace are fair.
• Law requires businesses to give honest information to consumers or block firms from joining together to prevent competition and fix prices.
Need for government intervention
• A Mixed economy is a market-
based economic system in which
the government is involved to
some extent.
• The degree of government
involvement varies from nation
to nation.
Discussion Question
• Laissez Faire Demonstration.
• Do you think the government should be
actively involved in the economy with laws or
regulations or do you think the government
should leave the economy alone?
Balancing Needs and Freedom
• Every society must assess its values and prioritizes its economic goals.
• Some goals are better met by the open market, while others may be better achieved through government action.
• In addition, societies must evaluate the opportunity cost of pursuing each goal.
• What are you willing to give up?
• Are you willing to pay taxes to fund the army? Education?
• Denmark the government pays for medical school but higher taxes.
Circular Flow Model of a Mixed Economy.
• Firms purchase labor, land, and
capital from households.
• (Purchase by employing workers)
Government does the same.
• It employees 2.7 million including
law enforcement, TSA, etc.
Circular Flow Model of a Mixed Economy.
• Government also purchase
goods and services.
• They purchase computers and
phones from private firms.
• Government also provides
goods and services such as
construction of roads, law
enforcement, etc.
Circular Flow Model of a Mixed Economy.
• Government also collect taxes from
both households and businesses.
• Governments then transfer some of
the money to businesses for variety
of reasons,
• such as providing funds to save a
failing industry or making payments
to disabled workers or Social
Security.
Comparing Mixed Economies:
• North Korea: has an economy
totally dominated by the
government.
• The government owns all the
property and all economic
output.
• State run industries produce 95
percent of North Korea’s goods.
Comparing Mixed Economies:
• Economic transition is a period of change in which a nation moves from one economic system to another.
• China although heavily relied on central planning in the past is now going through economic transition a period of change in which a nation moves from one economic system to another.
• In China’s case, the transition involves privatizing state owned firms.
Comparing Mixed Economies:
• Privatization is the process of
selling businesses or services
operated by the government
to individual investors and
then allowing them to
compete in the marketplace.
Comparing Mixed Economies:
• Hong Kong is one of the world’s freest markets.
• 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.
• The area is highly receptive to foreign investment and places virtually no barriers on foreign trade.
• Banks in Hong Kong operate independently from the government, and foreign-owned banks have nearly all the rights of domestic ones.
U.S.
• The U.S. Economy is a mixed system.
• The foundation of the U.S. economy is the free market.
• An economic system characterized by individual or corporate ownership of capital goods is called a free enterprise system.
• In a free enterprise system, investment in firms are made in a free market by private decision.
U.S.
• Government in the U.S. plays a substantial role in the American economy.
• The American government keeps order, provides vital services and promotes the general welfare.
• Federal and State laws protect private property.
• The marketplace operates with a limited degree of government regulation.
U.S.
• Overall the U.S. enjoys a high level of economic freedom. Foreign investment is encouraged.
• So too is free trade although the government does protect some domestic industries and does retaliate against trade restrictions imposed by other nations.
• The banking system operates under relatively few restrictions.
• Luk_10:7 And in the same house remain, eating and drinking such things as they give: for the labourer is worthy of his hire. Go not from house to house.
• For I was an hungred, and ye gave me meat: I was thirsty, and ye gave me drink: I was a stranger, and ye took me in: Naked, and ye clothed me: I was sick, and ye visited me: I was in prison, and ye came unto me. Then shall the righteous answer him, saying, Lord, when saw we thee an hungred, and fed thee? or thirsty, and gave thee drink? Matthew 25:35-37
• (1Jn 5:3) For this is the love of God, that we keep his commandments: and his commandments are not grievous.
Discussion Question
If you were a head of state of a nation, what economic system would you choose to adopt? (Group with those you agree with)
o Traditional
o Command/Communism
o Mixed Socialism
o Mixed Capitalism
o Laissez Faire Capitalism
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