IGCSE Economics - The Mixed Economy

Indirect Taxes

Taxes on consumer spending.

Subsidies

Money granted by the government to firms.

Market Economy

Provision of goods and services mostly by individuals and private firms rather then the government.

Planned Economy

Provision of goods and services entirely by the government.

Mixed Economy

Provision of goods and services by both private and public sectors.

Market Failure

occurs when the distribution of goods and services in a free market is inefficient

Merit Goods

Goods that are goods that can be supplied by the private sector but are under provided.

Public Goods

Goods that are non-rivalrous and non-excludable in nature; unlikely to be provided by the private sector.

Free Rider

A individual who consumes a good/service without paying.

Free Rider Problem

- Due to the non-excludable nature of public goods it is difficult to charge people for benefiting.

- This leads to an under-provision of a good, causing market failure.

Privatization

The transfer of ownership of a firm from the public sector to the private sector.

External Costs

- Negative third party effects due to consumption or production of a good.

External Benefits (Positive Externalities)

- Positive third party effects due to consumption or production of a good.

Private benefits (Negative Externalities)

Rewards to third parties of an economic activity, who are not direcetly involved, due to the production or consumption of that good

Social benefits

Benefits of an economic activity to society as well as to the individual or firm.

Social Cost

- Costs of an economic activity to society was well as the individual or firm.

Private Costs + External Costs

Government Policies To Deal With Externalities

• - Taxation (incentivizes firms to reduce external costs)

  - Subsidies (incentivize firms to reduce external costs)

  - Fines (fines used to reduce external costs; may be imposed on those that damage the environment)

  - Government regulation (pass legislation to protect the environment)

  - Pollution permits / right to pollute (give businesses right to discharge a certain amount of polluting material)