Assess whether a planned economic
system should always switch to a mixed
economy? {12}
A planned economic system is one where the government makes all decisions about
resource allocation, production, and distribution. On the other hand, Mixed Economies are
economic systems that combine the benefits of both Planned economy and Market
economy to produce a system with as little errors as possible.
In a planned economy, since the government is responsible for controlling the economy,
the basic aim is social welfare. This means that instead of focusing on profit maximization,
the government focuses on the well-being of its citizens making sure that their needs are
catered to first. Thus, more focus is paid on producing merit goods and services such as
education and healthcare. The main idea of a command economy is to lower the gap
between the rich and poor which is done by progressive taxation; making taxes directly
proportional to income, and better transfer of payments.
However, the downside of a planned economy is that since the economy isn't profit-based,
the allocation of resources is inefficient. The consumer demand isn't fulfilled, and
consumer has no choice of what he can buy or not meaning they have no authority.
Moreover, there is inefficiency in the use of resources which leads to many resources
being wasted. Absence of private sector decreases the competition in the market which
leads to poor quality control on good and services as the main goal is to keep prices low.
No attention is paid on reducing average cost of production in the long-term leading to
inefficient utilization of resources. Businesses are discouraged from investing in such a
market where there is no incentive for profit.
In a mixed economy, the problems of planned economy are addressed. It is more
allocative efficient as it addresses consumer demands properly by not completing
disregarding market forces D/S. Furthermore, it is more efficient in production as the
private sector is given authority. This encourages businesses to invest and focus on profit
making which not only lowers average manufacturing cost but also increases competition
and quality of goods and services. A competitive market also results in low prices as
enterprises compete for a greater market share for themselves.
With that being said, mixed economy too comes with its cons such as over production and
consumption of demerit goods and services due to low prices set by D/S and the opposite
may occur to merit G/S.
In conclusion, A planned economy should be shifted to a mixed economy however,
keeping in mind that if it is shifted to a mixed economy then the mixed economy should be
a perfect equilibrium between market and planned economy. The point of a mixed
economy is to combine benefits of both economies. If that basic aim is achieved then a
planned economy should always switch to a mixed economy. This way the disadvantages
of planned and market economy are avoided.