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Difficulty: MediumMixed Economy

In a mixed economy, both the price mechanism and government regulation direct the allocation of resources. Which of the following functions is exclusively performed by the government sector in this economic framework?

  1. Providing non-excludable public goods such as national defense and street lightingAnswer
  2. B
    Setting market clearing prices for consumer goods produced by private firms
  3. C
    Determining individual consumer preference schedules through central directives
  4. D
    Eliminating the profit motive to ensure equal distribution of wealth

Answer

Providing non-excludable public goods such as national defense and street lighting
The provision of non-excludable and non-rival public goods, such as national defense and street lighting, is a distinct responsibility of the public sector in a mixed economy. Because the price mechanism fails to supply these goods profitably due to the free-rider problem, state intervention is necessary.

Step-by-Step Solution

1
Analyze the dual-sector structure of a mixed economy
Recognize that a mixed economy combines private enterprise (guided by market forces) with public sector intervention.
Differentiating between public and private roles is fundamental to understanding mixed economic systems.
2
Identify market failures and state responsibilities
Public goods (e.g., national defense, street lighting) cannot be restricted to paying customers, leading to free-rider issues that prevent private market provision.
Addressing market failure by supplying public goods is a primary role reserved for the government sector.

Key Concept

Role of the Public Sector in a Mixed Economy
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Topics

Mixed Economy

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