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Planned Economy Mixed Economy And Free Market Economy Economics Essay

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Published: Mon, 5 Dec 2016

Mixed economy system is the system that between the centrally planned system and the free market system. In short, we can say that mixed economy system have the combine of the advantages of free enterprise system and the central command system. A mixed economy system represents an achievement balance between social goals and individual initiative. In order to achieve their planning, mixed economy is based on the free enterprise principle, that mean there is some form of direct intervention and control by the government and also can means as some private and some state monopoly. The mixed economy is owns by both private and public sector. All the decision making insides this system of economy is made by both the sector in the country. For example of the mixed economy is Malaysia. Malaysia is one of the countries that attempt mixed economy system. Other than our country, Singapore, Thailand, Indonesia, and India also attempt this economy system. The intervention insides this economy system is to avoiding the economics problem that will exist in centrally-planned and free market system. In mixed economy system, government plays an important role in avoids the country failing in market failure and market inefficiency. Government intervention usually is to correct and balance between the public and private. The price mechanism is allows to operate but in same case, the price mechanism fails or work against public interest.

Price mechanism is the system of interdependence between supply of the goods and services and its prices. It also called as price system. The interaction between the consumers demand for the goods or services and the supply of goods or services by a producer determine the price. In short, we can say that prices are determined by shortages and surpluses. The diagram below is the picture of the price mechanism:

The price mechanism will automatic correct the price if any surplus or shortage occurring in the country. Normally a shortage of a product causes the price to rise and surplus causes the price to fall. Price will determine how much of a product will a producer decides to supply. If the products price is high, the profit is greater and more will be supplied due to producer profit motive. If consumers decide that they want more of a good, it will cause the price to fall until the surplus is eliminated. In the pictures above, surplus means that a situation which quantity supply is greater than quantity of demand. Government will balance it by lower the price in price mechanism in order to correct the situation. For example, there are too many land in the market, in order to sell off the more land, government take action on decrease the price or reduce the price in order to create demand. So, when the prices of the land have been decreasing, the land will be sold off easily and the market will become equilibrium. So in the other hand, shortage is means that there is a situation in which demand quantity is greater than supply quantity. For example, there have shortage of the land in a country, government take action in increasing the price of the land in order to decrease the demand in order to earn more profit of the people. When the prices become higher, people might not be able to offer or paid it, so they will not demanding for more anymore.

Besides the intervention of government in the price mechanism, government also intervenes on other things. In mixed economy, private sectors are allows to own their own asset and their factors of production. But Government also have decides on resources allocation of scare commodities. Government has their responsible to produce public goods and services which are too costly. Public goods and services are the item whose consumption not by the individual consumer but by the whole society. Some of the examples of public goods are public fireworks, lighthouses, and clean air. These things are use by all the society but not an individual itself. All the goods that are non-rival and non-excludable only can be classified into the public goods and services. Non-rival means that allow the goods using by social with free, they are not need to paid before they using it. Non-excludable is means that the consumption of the goods by one person does not diminish the amount available for the next person. Once the person has already uses, they will not be influence and is still available use by the next person. Besides that, merit goods are also provides by the government. Merit goods means that goods and provided, it is not possible to exclude people from using them even if they haven’t paid. Usually merit goods have positives externalities. Other than the merit goods and public goods, there are some controlling goods in country Malaysia. We call them as control item. These items such as oil, sugar, salt, their price are control by the government to control the economics.

Other than that, government also provides some subsidized, infrastructure or services to society. Subsidized is an action of incentive that provided by the government. In Malaysia, government provided subsidized for some of local business or companies and some of the poor income people. Government giving chances to them to chance their lifestyle to becomes better. For poor income people, they can apply subsidized to reduce their burden in order to let their expenses decreases. Besides that, infrastructure and services provided by government in Malaysia such as public library and their information services, road that we using every day, and transportation such as train, airplanes, and cars. Besides that, government also provides education such as all type of school and health care such as public hospital for the society. In order to ensure that everyone have a chance to study, government in Malaysia compulsory that everyone need to study until secondary school form three. Malaysia government also provides free textbook to all the secondary school and all the primary school. This kind of action can reduce the burden of those who are from poor family. Public hospital in Malaysia is opened in every location. Costs of the medicine of public hospital are cheaper than those are private hospital. With a rising of the population, the government wishes to improve public hospital in many areas including the refurbishment of existing hospitals, building and equipping new hospitals, expansion of the number of polyclinics. Polyclinics are the one useful clinic in Malaysia. It has helped a lot of citizen in Malaysia. Their costs are cheap, and when those whom are poor and can’t offer a higher costs of medicine, they can direct asked for help in this kind of clinic. Moreover, government also provides bank services such as ATM services in every bank and different type of financial services in bank. Besides those I was mention in above, communication services, electric and other energy services, and water system also had provided in Malaysia. Communication services such as telephone, email, internet line also provided in Malaysia. The popular communication services used in Malaysia is called as Streamyx and TM. Electric services or energy services in Malaysia are gas and oil and besides that water system such as drinking, agriculture, and water disposal.

In mixed economy, government also intervenes to prevent economic problems. For example, government does intervention in different of law and regulations. Government creates law such as labour regulation, consumer regulation, and import and export control. For import and export control, tariffs and quota are using in Malaysia. Tariff is the tax imposed in the importing goods and quotas is a restriction on the import of something to a specific quantity. Other than that, the consumer freedom in mixed economy is not strong enough. While consumers have some to say, their voices are not strong. For example, when the petrol price becomes higher day by day, the consumers start to feel stress n they will complain to the government. But in the end, government will decided for society even that they have already expressing their feeling to the government. For the example in Malaysia, this situation is occur in early January 2011 by 10 sen to RM2.40 per liter, and before that the last hike was on the 1st of December 2010, also by 10 sen. If this 10 sen per month trend continues, we could be at RM3 per liter by the middle of the year. Moreover, the wealth ownership in the mixed economy is control by the private and public. There is a mixture of government and private ownership. For example in Malaysia, some of Malaysia’s land are owns by the government but in some of the land are open for sale such as the land in Port Dickson.

Conclusion, government plays an important role in mixed economy. Government controlling the fail or works in price mechanism, provides some goods such as public, merit and control item. Besides that, government also provided some subsidized, law and regulation, health care, education, different types of tax, some transportation services, communication services and electric services.


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