Characteristics of Mixed Economies (Edexcel IGCSE Economics)

Introduction to Mixed Economies

• A mixed economy is a blend of the free market and a planned economy

• It is an economy in which there is both a public and a private sector

  • Individuals, firms and the government own factors of production and distribute goods/services. E.g UK, Germany, Ireland, Japan

  • Some mixed economies have a higher level of government intervention than others
    

• Government intervention occurs mainly through taxation (to raise revenue) and then spending that revenue to redistribute income and provide essential goods/services

  • There are many different type of tax interventions, including personal income tax, corporation tax, value added tax, tariffs on imports, inheritance tax etc.

  • Income is redistributed through the creation of a welfare system, which often includes unemployment benefits, healthcare, and pension provision
    

• Government spending is often focused on infrastructure, merit goods (e.g. schools) and public goods (e.g. national defence)

Public & Private Sectors

• Public sector organisations are owned and controlled by the Government

  • Their goal is to provide a service rather than maximise profit

• Public sector organisations are funded by central and local governments, but some may charge a fee for selected services 

  • They provide essential services such as water, electricity supply or emergency services

    • They are merit goods that may not be provided in sufficient quantities by private businesses, such as education or health services

    • Some public sector organisations were once owned by private individuals and have been nationalised to ensure their survival

  • A range of government-owned organisations exist in the UK

    • Corporations like the BBC and Channel 4

    • National services such as schools and the NHS

    • Local services such as Transport for Greater Manchester and county-based Social Services

    • Civil service departments such as Defence, Police and Social Security

    • Regulatory bodies such as the General Dental Council

• Private sector organisations are owned and controlled by private individuals

  • Owners can be sole traders, partners or company shareholders

  • The goal of most private sector organisations is profit maximisation

    • This may mean that the private sector is more efficient than the public sector, with higher levels of productivity 

    • They may be more efficient as they seek to maximise profit

Ownership & Control

• There are several types of business ownership in the private sector, the most common of which are sole traders, partnerships and companies.

• Public sector firms may be partially owned by private shareholders (less than 50%), with the balance being owned by the government

Ownership and Control of a Business

Aims of a Business

• The aims of a firm are a reason for their existence or the desired focus of their owners

  • These aims typically include profit maximisation, growth, survival and social welfare
     

1. Profit Maximisation

• Most firms have the rational objective of profit maximisation

• Profit = Total Revenue (TR) - Total Costs (TC)

• To maximise profits, firms can either increase their sales revenue or decrease their costs

  • Firms continuously analyse their costs to see if they can reduce them so that profit can be maximised

2. Growth

• Some firms have the business objective of growth

• In subtopic 3.5 we considered the different metrics that firms use to compare their size which include the number of employees, market share, size of profits & market capitalisation

• Firms with a growth objective often focus on increasing their sales revenue or market share

• Firms will also maximise revenue in order to increase output and benefit from economies of scale

• A growing firm is less likely to fail

3. Survival

• In the short term, many new firms focus solely on business survival

• Generally, as much as 25% of new firms fail in their first year of business

• Once a firm is established, it may then begin to focus on profit maximisation as its new objective

4. Social welfare

• More firms than ever are launching with a social welfare objective

  • These typically include a focus on climate action & addressing poverty or inequality

• They still require profit to survive, but will accept less than if they were profit maximising as long as they are meeting their social objective

5. State provision

• Businesses in the public sector aim to provide goods and services that may not be provided or would be underprovided in a free market

  • E.g. Street lighting, elderly social care, education

6. Generate a surplus

• Some publicly-owned organisations, such as the BBC and Channel 4, aim to generate a surplus

  • This surplus can be reinvested into services or returned to the government