2.11 Mixed economic system

No country including the United States (US), escapes the economic problem. The US has a high GDP per head. It also has a high degree of income inequality. There are both super-rich billionaires and people living in poverty. In 2023, 12% of US households had one or more members who missed meals because they did not have enough money to buy sufficient food. Some argue that the reich should pay a very high tax rate of income tax.

c) Analyse how a government could increase the access of low-income households to food.

Street vendors mostly operate outside of the formal economy to avoid government regulation. However, many are now entering the formal economy. This has led to more government revenue, increased productivity and higher economic growth. Some governments plan to take measures to increase the number of firms in the economy.

c) Analyse how government regulation can reduce market failure. [6]

The shape of Colombia's population pyramid is changing. The income distribution of this South American country, however, is not changing significantly. The country has one of the most unequal income distributions in the world. Some Colombians work in its footwear industry which produces shoes, sandals and boots. Although footwear is produced in the private sector, Colombia has a mixed economic system.

d) Discuss whether or not a mixed economic system will benefit the people who live in that economy. [8]

Nigeria has a mixed economic system. In January 2023, Nigeria had a Hugh unemployment rate of 33% which created a number of costs. Its high inflation rate of 22% had several effects on the country's firms. In 2022 and the start of 2023, Nigerians increases their demand for foreign currency.

b) Explain how the key resource allocation decisions are made in a mixed economic system. [4]

The World Trade Organization (WTO) estimates that India has the largest levels of trade protection of any major economy. The highest tariffs are imposed on products from the primary sector. For example, in 2018 India imposed a tariff of approximately 90% on imports of coffee to protect its coffee farmers. However, the markets for coffee substitutes and complements do not have such levels of government intervention.

b) Explain two reasons why a government may subsidise food production. [4]

In the US, the supply of meat from emus, a large bird, is price-elastic. Recently, US farmers have switched to keeping other livestock and growing crops that changed their demand for labour. US farmers are influenced by the subsidies the government provides for the production of selected food items. Some people are reluctant to become farm workers as they think living standards are low in rural areas.

b) Explain two reasons why a government may subsidise food production. [4]

In 2020, Australia had a high national minimum wage (NMW). The NMW is received by some people who work on Australian dairy farms. Australia produces milk and soft drinks. Milk is purchased by some people as an alternative to soft drinks. Some dairy farms and some small firms went out of business in 2020. The year saw an increase in the value of the country's floating foreign exchange rate.

a) Identify two reasons why a government may set an NMW. [2]

In 2019 India became the world's largest producer of sugar. Sugar cane is grown in the country by a large number of mainly low-income farmers. They sell sugar cane to mills which process the sugar cane into sugar. Processing the sugar cane is more capital intensive than growing it. The Indian government sets a minimum price for sugar cane and subsidises the export of sugar.

a) Define minimum price. [2]

Serbia is the world's second largest producer of raspberries, a product with elastic demand. Consumers experience the economic problem when buying raspberries. Few raspberry farm workers are members of trade unions. Membership pf trade unions in Serbia has fallen to 20% of all workers by 2020. In that year, Serbia had more state pensioners than workers.

d) Discuss whether or not a government should reduce the amount of money it gives to each state pensioner. [8]

Uganda specialises in agricultural products and has a relatively small secondary sector. In the 1990s, the Ugandan government privatised most of its firms, including banks and railways. Some economists thought this privatisation was unsuccessful because poverty increased and unemployment remained high. In recent years, the Ugandan government has used supply-side policy measures to reduce unemployment.

a) Define privatisation. [2]

Singapore is a high-income country with a shortage of land and labour. Singapore is often given as an example of a market economy. The Singaporean government does, however, intervene in the economy. For example, it encourages its population to eat two servings of fruit and two servings of vegetables per day.

d) Discuss whether or not a market economic system benefits an economy. [8]

Nearly one million people in Cairo, the capital city of Egypt, live in crowded, unhealthy housing. One reason why people lack basic necessities, including adequate housing, is unemployment. In 2019, nearly 10% of Cairo's workers did not have a job. Other citizens of Cairo live in luxury, in houses costing more than $1 million. Many of Cairo's rich adults grew up in rich families.

d) Discuss whether a government should provide subsidies to families to spend on housing. [8]

Global spending on the health sector, by both the private and public sectors, is the highest compared with all other sectors including education and defence. Investment in education and the health sector has resulted in new life-saving technology being introduced. However, demand for certain vaccinations has decreased over the years, shifting the demand curve of vaccinations to the left.

d) Discuss whether consumers would benefit more from healthcare being provided by the private sector or the public sector.

In the Netherlands in 2018, there were 1.3 bicycles per person and the world's largest underground bicycle parking area was built in the capital city. Land is scarce in city centres, where most cycling takes place. Demand for bikes in the Netherlands is price-inelastic. Only a few people in the Netherlands borrow money to buy bikes. The government encourages cycling by spending on both bike parking areas and leisure cycle parks.

c) Analyse why households in one country may borrow more than households in another country. [6]

d) Discuss whether or not a government should encourage more people to cycle. [8]

Sweden has a mixed economic system. In 2018, it was operating at a point inside its production possibility curve (PPC). In 2018, the country's schools employed nearly 2500 extra teachers. A few of these had previously been actors. A higher number had previously been government officials involved with regulation of Swedish monopolies.

a) Define a mixed economic system. [2]

Among the reasons for Malaysia's continued economic growth are rises in consumer spending and the country's ability to adapt to changes in global demand. For example, when the price of natural rubber fell, most rubber plantations changed to palm oil production. The government has tried to promote the growth of different sectors, including the primary sector.

a) State two sectors, other than the primary sector, in an economy. [2]

The population of Hungary is the most obese in Europe. Hungarians eat fewer vegetables than most Europeans and more food types that may be considered to be demerit goods. In 2017, the Hungarian government introduced a tax on unhealthy food, known as the chips tax. The tax has had some success in moving demand to healthier foods. Some economists suggest that governments should use price controls as well as taxes to influence the food market.

d) Discuss whether or not a government should impose a maximum price on food. [8]

The Indian government has declared that the country, now a major car producer, will sell only electric cars by 2030. The government wants to reduce external costs, some of which are caused by petrol and diesel cars. Demand for electric cars is currently relatively low and price-elastic. The government, however, thinks that it will not need to subsidise the production of electric cars to achieve its target.

c) Analyse, using a demand and supply diagram, how a subsidy given to producers could affect the market for electric cars. [6]

d) Discuss whether cars should be produced by the private sector or the public sector. [8]

Business-friendly fiscal policy in the United States (US) has encouraged firms to produce more. The US government has also encouraged mergers, including firms in the gas and electricity industries. Even though there are significant regulations, entrepreneurs have found that mergers enable them to maximise their profits. However, this may make markets less competitive and some states have imposed a maximum price for gas and electricity.

d) Discuss whether or not maximum prices are beneficial. [8]

Botswana has a number of conservation projects. These are thought to provide a social benefit to local communities. Botswana has a mixed economic system with tax revenue as a percentage of GDP at 27% in 2017. Some Botswanan economists suggest that the country should move towards a market economic system, taking care to avoid market failure.

d) Discuss the advantages and disadvantages of a market economic system. [8]

Droughts in the Pacific Coast region of the US and regulations, in the form of limits on the amount of salmon that can be caught in the wild, have reduced the supply of wild salmon. These limits were imposed to avoid market failure in the salmon market. However, the effect of this on the revenue of salmon producers is uncertain. In addition, producers of farmed salmon in the US states of Washington and Alaska have received subsidies from the US government.

d) Discuss whether or not government subsidies are beneficial to producers. [8]

The Malaysian government implemented the Vision 2020 policy which aims to make Malaysia a developed country by the year 2020. Along with this vision, the National Privatisation Policy was also implemented whereby various firms, such as those involved in telecommunications, were privatised. Poverty has significantly reduced since the implementation of these policy measures.

d) Discuss whether or not moving firms from the public sector to the private sector will benefit an economy. [8]

More governments are imposing taxes on unhealthy food and drinks. Such taxes are usually regressive. Some of these governments are also increasing their spending on healthcare. In other countries healthcare is provided by the private sector. The number of state-owned enterprises is declining in a number of countries due to privatisation.

d) Discuss whether or not consumers are likely to benefit from state-owned enterprises becoming private sector firms. [8]

In the UK, bus journeys outside London have fallen by nearly 40% since 1980. This fall in demand has been largely due to a rise in bus fares, a rise in income and changes in the price and quality of substitutes. On some routes there are monopolies operating and this lack of competition can push up the price.

d) Discuss whether or not a government should subsidise bus transport. [8]

In the 1990s Cambodia became a mixed economy. One of the results of this was specialisation in the clothing industry. In 2005, import quotas for clothing in the key markets of the USA and the EU were removed. Clothing now accounts for 80% of Cambodia's exports. The increased role of the private sector has resulted in a rise in malnutrition in Cambodia.

d) Discuss whether or not an increase in the role of the private sector will benefit an economy. [8]

The state of California has the most progressive tax system in the USA. The tax system helps reduce high poverty rates. Policy makers are considering reforming sales tax in the state to include services, while reducing the use of direct taxes.

c) Analyse, using a supply and demand diagram, the effect of increasing a sales tax. [6]

France is a mixed economy. During recent years there have been a number of changes in its labour market. More workers are employed in the tertiary sector and fewer workers in the primary sector. Average working hours have increased and public sector workers have received wage rises.

a) Define mixed economy. [2]