Chapter 15: Mixed economic system

Question 1

Mixed economic system

Answer 1

An economy in which both the private and public sectors play an important role

Question 2

Maximum prices

Answer 2

• Government may set a maximum ceiling on price in order to enable the poor to afford basic necessities
• Some peopel now able to purchase product at a lower price
• Shortage created
• Rationing or lottery to allocate

Question 3

Minimum price

Answer 3

• Government may set a minimum price to encourage the production of a product
• Surplus created
• To prevent price being driven down, the surplus will have to be bought up by the government or some other offician body

Question 4

Government measures to address market failure

Answer 4

• Subsidies and indirect taxes changing the cost of production
• Competition policy (prevention of mergers, removal of barriers, regulation of monopolies, prohibition of uncompetitive practives)
• Enviornmental policies
• Regulation (rules and laws placing restrictions on the activies of firms)
• Nationalisation and privatisation
• Direct provision (merit goods, public goods)
• Unfairness (intervene on grounds of equity)

Question 5

Risk of government failure

Answer 5

• May overestimate the extent of private benefits offered to people by consumign merit goods and mayt find it difficult to calculate the most efficient quanttity of public goods to supply
• Decisions may be influenced by political factors
• Governemnt interventaiton may reduce eocnomic efficiency by reducing incentives