Mixed economy

The Modern “Mixed” Economy

Mixed economy is an economy Opens in new window in which most economic decisions result from the interaction of buyers and sellers in markets, but in which the government plays a significant role in the allocation of resources.

In the nineteenth and early twentieth centuries the governments in market economies engaged in relatively little regulation of markets for goods and services.

Beginning in the middle of the twentieth century, government intervention in the economy dramatically increased in every market economy.

This increase was primarily caused by the high rates of unemployment and business bankruptcies during the Great Depression of the 1930s Opens in new window.

Some government intervention was also intended to raise the incomes of the elderly, the sick and people with limited skills.

For example, in 1910 Australia established the Social Security System, which now provides government payments to the retired, the disabled, the unemployed and others including those with children.

Governments also provide goods and service that the market does not provide, such as roads, street lighting and national defense, or that the market fails to provide in sufficient quantities or at affordable, prices, such as education and health services.

In more recent years government intervention in the economy has also expanded to meet such goals as protection of the environment and the promotion of equal opportunity.


Some economists argue that the extent of government intervention makes it no longer accurate to refer to Australian, US, Canadian, Japanese and most European economies as market economies. Instead, they should be referred to as “mixed economies”.

In a mixed economy most economic decisions result from the interaction of buyers and sellers in markets, but the government plays a significant role in the allocation of resources.

Economists continue to debate the role government should play in a market economy.

One of the most important developments in the international economy in recent years has been the movement of China from being a centrally planned economy to being a more mixed economy Opens in new window.

The Chinese economy had suffered decades of economic stagnation.

Although China does not have a democratically elected government, production of most goods and services is now determined in the market, albeit with substantial government intervention.

The result has been rapid economic growth.