Mixed economic system can be defined as an economic system that combines both a free market system and the system of planned economy. In other words, under the system of mixed economy, most goods and services will be solved using the price mechanism and partly solved by the government.
Characteristics of mixed economy system.
There are some features of this mixed economic system. Among these are;
a. Users have the ownership on the factors of production.
b. Users make economic decisions on purpose to maximize satisfaction.
c. Operators for the purpose of making economic decisions to maximize profitability.
d. There is government intervention in the economy, namely in the form-impose taxes on consumers and producers. -To provide subsidies to consumers and the manufacturers are involved in the supply of goods and services-Providing control over the private sector through legislation.
Method of solving the economic base.
In the mixed economic system, there are two methods to solve the basic problems of the economy. The first is to use the price mechanism (as in the free market system) and the second by the direct intervention by government in offering goods and services (such as the planned economy system). Divided between the two methods of solution is dependent on the type of goods and services produced. In the event that the goods produced are personal or economic goods, which for these goods consumers are willing to pay, the goods and services of this nature will be removed by using the price mechanism. Second, if the goods and services that are classified as public goods, which consumers can not pay any benefits produced by the item, the goods and services shall be issued by the government. For example, defense and security services, roads and so on.
A. Troubleshooting the goods and services to be produced and how much.
As mentioned above, if the goods are classified as personal or economic goods, it will use the price mechanism. This means that users will create a desire in the demand curve. In other words, consumers through the purchasing power would be willing to pay for an article is. Then there is the demand curve D shown in the diagram above 1:11. Second, producers will see what items are requested by users and then they will see if the item is able to be removed and would benefit him. If they are able to and will benefit from the operation, there will be a supply curve S, as shown in the diagram above 1:11. In the event of both the demand curve (D) and the supply curve (S) exist in the market, the goods shall be issued by the economy.
Problem of how much these items removed will be resolved through the intersection of both demand and supply curves are. As in figure 1.11, this economy will produce by 0Ko units, and prices available in the market by 0Po unit.
For public goods, due to interest generated by the use of the goods will be enjoyed by every one - whether they pay or not, then users will not want to pay when using the item. The reason given is that other users who do not pay will also be able to use and will enjoy the benefits of such goods. For example in the provision of rural roads or in town, everyone in the village or the city will use them for free. This is because all the people in the area do not want to pay for using the road. But if this kind of private issuers will not be willing to provide it, because they can not return from the investment made. Since this road is vital to the public, the government will have to enter into the economy and provide the road. Similarly, public goods such as defense services, police, schools, health and some other goods and services will be provided by the government. In Malaysia each year, the government will present the national budget and the matter will be settled in the budget is how long the roads will be built, how many schools and hospitals and health centers will be built next year and also explained the amount of expenditure allocated to provide public goods and services.
Two. The solution to the problem of how goods and services at issue.
For personal and economic goods, such as the free market, producers will use production techniques that will produce the goods at a minimal cost. This is because the manufacturer has the objective to maximize profits.
For public goods, manufacturing techniques will be determined by the government. This means that the government seems to know the efficient production techniques and better to operate.
Three. Solution to the problem of goods and services who are removed.
For personal and economic goods, this problem will be solved on the basis of the demand curve that exists in the market. This means that to whom the goods are produced depending on the purchasing power of consumers. But for public goods, the government will determine its own to whom the goods are released. For example, in Malaysia the government is building schools or health centers in an area that is intended to provide such services for the population in a specific.
The advantage of mix of economic systems.
There are several advantages in this mixed economic system. Among these are;
- Users have the freedom in owning the factors of production.
- Users have the freedom in the use of goods and services to ensure that they will be able to maximize satisfaction.
- Producers also can act independently in making the decision to remove an item or service, and their decisions are based on the objective to maximize profits.
- This economic system can ensure that public goods are always on offer in the economy and this responsibility will be implemented by the government.
- The government will provide subsidies in certain sectors deemed essential to the welfare of the people of the country.
- Government can play a role as a stabilizer to the unstable economic conditions such as inflation and recession, which is to carry out the policies of fiscal and monetary.
- Government can create conditions more equilibrated distribution of income among its citizens, namely through tax policies and subsidies.
The weakness of mixed economic systems.
There are several disadvantages of this mixed economic system. Among these are;
a. The tax system implemented by the government would interfere with people's welfare level in the country, especially for rolls rich.
b. The tax system will also affect the course of trade flows that exist in a country.
In the 21st century, the economic system adopted by all governments in the world is more focused on mixed economic system. If the practice is usually a country that is free market economic system in countries such as the United States, England and several European countries, and examples of countries that have a system of planned economy is like Russia and China. But in the 21st century all these countries have not adopted the economic system mentioned above. For example, the United States, England, Germany and others have already intervened in determining their economic activities. This intervention is in the form of a levy on people and companies operating in these countries. In the recession year of 2009, all governments in these countries have already taken over some of the major industries, such as the United States government has already taken over several car manufacturers like General Motors, and some of the country's largest bank.
Similarly, in Russia and China, which used to practice the economic system that is related to the planned economy system, but now they have been encouraging foreign companies to invest in these countries. In other words, in the 21st century is all communist countries has been changing economic policies of the planned economy system to a system of mixed economy.
Malaysia is a country that mixed economic system. In Malaysia the economic activities carried out by two groups, the first is a group of entrepreneurs who carry out production activities of goods and services demanded by Malaysians as well as for exports. At the same time the government has carried out economic activities in providing public goods like roads, schools, health and others. Besides the state-owned companies such as Khazanah Berhad, is also actively involved in economic activities. The government also impose taxes and provide subsidies to ensure that the activities and welfare of its citizens guaranteed.
At the same time the government carries out economic activities based on Islamic economic system, namely by providing Islamic banking system. In the year 2010 in Malaysia, there are three major Islamic bank, Bank Islam, Bank Transactions and Bank Al-Rajhi. IN addition to the conventional banks (banks that operate based on usury or interest rate) has been offering Islamic banking. However, the Islamic banking system in Malaysia is very small compared with the conventional banking system. Thus we can classify that the economic system practiced in Malaysia is more like a conventional banking economic system. Thus we can classify that the economic system practiced in Malaysia is more like a system of mixed economy. But differences between countries in the world in the course of this economic system can be summarized as in figure 1. 12.
Figure 1.12 shows the difference in per cent of government intervention in the economic system adopted by some countries in the sample. For example, the United States have a system of mixed economy but the government's role is much smaller compared with the government's intervention in countries such as Russia and China. Malaysia was ranked in the middle of the mixed economic system adopted by the United States and Russia / China.