Problems and Solutions of a mixed economy are clearly explained in the above presentation. Cr- Group 11

1. Solution to Basic Economic
Problems in a Mixed Economy
Group 11

2. Mixed Economy
A Mixed Economy is an Economy which combines both
the elements of a capitalist economy and socialist
economy.

3. Features of a Mixed Economy
The co-existence of Private and public sector:-
Co-existence of public and private sectors. In public sector power,
energy, basic industries etc., are set up. On the other hand, in
private sector all the consumer goods industries, agriculture, small-
scale industries are developed. The government encourages both
the sectors to develop simultaneously.

4. Merits and Demerits of a Mixed Economy.
Merit:-
It distributes goods and services to where they are most required. It allows
prices to measure supply and demand.
Demerit:-
One demerit of mixed economies is that they tend to lean more toward
government control and less toward individual freedoms. Sometimes,
government regulation requirements may cost a company so much that it
puts it out of business

5. Price Mechanism
Price mechanism refers to the system where the forces of demand
and supply determine the prices of commodities and the changes
therein. It is the buyers and sellers who actually determine the
price of a commodity.
All conditions needed for the price mechanism to work are there in
a mixed economy- Existence of competition, Demand reflecting
needs, Correct anticipation of demand, etc.
Minimum prices, Taxation

6. What To Produce
❏ The consumer is regarded as the sovereign (KING).
❏ The basic objective of the producer is to make
maximum profits,so he would produce the goods that
have greater demand.
❏ An increase in demand for a particular commodity will
lead to a rise in its price. (Demand being high and low
supply causes shortage)
❏ The government regulates what goods produced hence
not many harmful goods are produced and goods that
the consumer wants are also produces.

7. Examples Of What To Produce
Governments giving subsidies for farmers for better development of their farms.
Higher taxation and greater wealth redistribution as well as growth of social development
with social aims such as health, old age and food, etc.

8. In What Quantity?
● It is the problem of determining the quantity of
each commodity and service to be produced.
● When we decide what to produce, we even decide
“how much to produce”.
● The society has to choose between various goods.
● Eg: Consumer and Capital goods.
The society has to decide whether to produce more
of consumer good like food, clothes, furniture or
more of capital goods like machinery, plant, tools
etc.
● Solution to this would be allocating resources in a
manner which gives maximum satisfaction.

9. How To Produce
The private sector of the mixed economy is motivated by the need to generate
income and profits. Firms reduce any extra expenditure to generate more
profit by choosing the least costly and most efficient method of production.
Obviously, there are some government regulations and policies that the
businesses must comply with, relating to things like labour abuse,
environment, pollution, etc.
In the public sector this planning is done by the government and planning
authorities, here the how to produce factor depends on the government’s
objectives of needing to generate more employment opportunities and
promoting economic growth.

10. Examples of How to Produce
A Mixed economy can choose how to produce goods and services.
Labour intensive technique and capital intensive technique.
● Labour intensive technique uses more labour and less capital.
● Capital intensive technique uses more capital and less labour.
An economy uses the suitable technique according to the availability of its resources.
For example, Japan has a low population so it uses capital intensive techniques. Whereas,
India has a large population so it uses labour intensive techniques.

11. ● Labour intensive technique - in hotels, mining, agriculture, construction, etc.
● Capital intensive technique - in automobile manufacturing, transportation, steel
production, etc.
The private sector majorly uses capital intensive techniques .
Whereas, the public sector majorly uses labour intensive techniques.

12. For Whom To Produce
● What is ‘whom to produce’ in mixed economy and how it helps the
economy.
● Role of Market forces and the Government.
● Market Forces and the Private Sector.
● Role of Government in Private Sector.
● Government and the Public Sector.

13. Examples
● If there is a part of society receiving a little share of the goods and
services produced, the government will ensure equal distribution of
goods and services.
● If an economy produces for those who can pay high price, then it will end
up in producing only those goods and services which a richer section of
the society can easily afford, such as expensive jewellery, luxurious cars,
etc.

14. Fuller and Efficient Utilization of Resources
● Price Mechanism plays an important role in dealing with the
problem of efficient utilization of resources in a mixed economy.
● Changes in demand and supply results in a change in prices,
which indicates changes in demand and supply in the market.
● So more resources will be allocated to the products which have
higher demand, and these resources have to be transferred from
other commodities. This ultimately results in efficient utilisation
of resources.
● As it is a mixed economy, government control over the price
mechanism is also present, which affects these changes

15. The Government and Price Mechanism
● The government firstly controls the price mechanism to make commodities affordable for the
poor people. For example, if the government of a certain country has control over the price
mechanism and wants to make a good such as petrol more available to the poor, the
government lowers the equilibrium price by providing subsidy and hence make it more
affordable. By doing this the government controls the price mechanism and benefits the
people by doing so.
● The government may also control the price mechanism to safeguard the interests of
producers. For example, if in a particular year farmers have produced excess of a certain crop,
the government can set a minimum price to ensure that the crops don’t go to waste and thus
avoiding overproduction.

16. Is the economy growing?
● What is economic growth? It is an increase in the production of
economic goods and services, compared from one period of time to
another.
● The economy may either grow due to the various merits of a mixed
economy or may also fall due to the various demerits of a mixed
economy.
● However, the problem of economic growth may be solved by price
mechanism and economic planning.
● Price mechanism- Here price mechanism will pay an equal role
along with the planning authority. Especially in the private sector of
such an economy, the price mechanism along with the competing
forces helps the economy with an allocation of resources.
● Economic planning- Economic planning is a resource allocation
system based on a computational procedure for solving a
constrained maximization problem with an iterative process for
obtaining its solution.

17. Any Questions?