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Difficulty: MediumMixed Economy

In a mixed economic system, the price mechanism regulates the allocation of resources in the private sector, while government intervention is utilized to correct market failures and provide public goods.

Answer: Answer

Answer

The statement is True. A mixed economy integrates both private enterprise operating through the price mechanism and state intervention to manage market failures and supply public goods.
A mixed economy fundamentally blends features of both free market capitalism and command socialism. The private sector relies on market forces and the price mechanism for resource allocation, while the public sector intervenes to address externalities, prevent exploitation, and ensure the provision of public goods.

Step-by-Step Solution

1
Analyze the function of the private sector in a mixed economy.
The private sector operates primarily via market demand, supply, and the price mechanism to determine resource allocation for consumer goods.
Profit motives drive private producers to respond to consumer preferences indicated by price signals.
2
Analyze the function of the public sector in a mixed economy.
The government steps in to provide non-excludable public goods, enforce laws, and correct market failures.
The price mechanism alone fails to allocate resources efficiently for public and merit goods.
3
Synthesize the dual framework of a mixed economy.
Combining price mechanism mechanisms with government regulation defines the core structural feature of a mixed economic system.
This dual approach balances economic efficiency with social welfare.

Key Concept

Dual Resource Allocation in a Mixed Economy
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Topics

Mixed Economy

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