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Difficulty: Very hardMixed Economy

In a mixed economic system, fiscal intervention by the government through selective taxation and subsidies completely replaces the price mechanism, leaving resource allocation entirely under the authority of a central planning board.

Answer: Answer

Answer

The statement is False. In a mixed economy, state interventions such as taxation and subsidies modify and complement the price mechanism rather than eliminating it or transferring total allocation control to a central planning authority.
The claim is false because state interventions via taxes and subsidies aim to adjust market incentives and correct market failures, not abolish market prices or institute absolute central planning.

Step-by-Step Solution

1
Analyze the core characteristics of a mixed economic system.
A mixed economy combines features of both market (capitalist) and command (socialist) systems, maintaining private ownership and market forces alongside public sector regulation.
Understanding the dual mechanism of mixed economies is essential to evaluate claims about resource allocation.
2
Evaluate the role of the price mechanism under fiscal intervention.
Taxes and subsidies alter relative prices and profit margins, influencing consumer and producer behavior without abolishing market-driven supply and demand interactions.
Distinguishing between market regulation/modification and total market replacement clarifies how prices function in mixed systems.
3
Assess whether central planning boards dictate total resource allocation in mixed systems.
Central planning boards direct resources exclusively in pure command economies, whereas mixed economies rely heavily on decentralized private decisions coexisting with state oversight.
Confusing partial state intervention with central economic planning leads to misinterpreting mixed economic principles.

Key Concept

Dual Resource Allocation in a Mixed Economy
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Topics

Mixed Economy

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