1. Chapter 2 Section 4
Mixed Economies

2. The Rise of Mixed Economies
Adam Smith believed that the free market would provide the greatest benefit for consumers and raise the standard of living
This is known as laissez faire
Laissez Faire – the doctrine that government should not intervene in the marketplace

3. Reasons for Government Involvement
Some needs are difficult to meet in the marketplace
National defense, highway systems, education
Property rights need to be protected
5th and 14th Amendments protect private property
Private Property – property owned by individuals or companies
Exchanges in the marketplace should be fair
Laws requiring businesses to give honest information to consumers or block firms from combining to fix prices and prevent competition

4. Mixed Economies Most modern economies are mixed economies
Mixed Economy – market based economic system in which the government is involved to some extent which varies from nation to nation

5. Copy this circular flow model onto page 154.

6. Government in the Factor Market
Just as firms purchase land, labor, and capital from households in the factor market, the government does as well
The U.S. government pays 2.7 million employees $152.2 billion a year for their labor
State and local governments participate as well

7. Government in the Product Market
Like households, governments purchase goods and services from firms in the product market.
Governments also provide certain goods and services by combining the factor resources they bought.

8. Transferring Money
Governments collect taxes from both households and firms
They then transfer this money to businesses and individuals for different reasons
The greatest of these expenses for the U.S. is Social Security

9. Continuum of Mixed Economies

10. Mixed Economies Where Government Intervention Dominates
North Korea
Government owns all the property and economic output; all imports are banned as is production by foreign companies
China
Allows more private ownership of farms and businesses
Economic transition – the process of changing from one economic system to another
Privatization – selling state-run businesses to individuals and allowing them to compete in the marketplace

11. Mixed Economies Where the Free Market System Dominates
Hong Kong
Once governed by Great Britain, now a special administration under China
Ruled by the private sector
Government protects private property and rarely interferes except when establishing wage and price controls on rent and some public services
Highly receptive to foreign investment and places virtually no barriers on foreign trade
Banks operate independently and foreign-owned banks have nearly all of the same rights as domestic ones

12. The United States Economy
Free Enterprise System – characterized by individual or corporate ownership of capital goods; investments in firms are made in a free market by private decision
Government keeps order, provides vital services, promotes general welfare, protects private property, limited degree of regulation
High level of economic freedom, encourages foreign investment, protects some domestic industries, banking has few restrictions