The U.S. Mixed Economy and the Economic Role of Government Essay
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In all economies scarcity (TOC1) is a real problem. This means compared to our unlimited wants the production factors (TOC 1) are scarce. As a result of this as a society we need to economize the use of resources in an efficient manner. Any Economic system has to address the fundamental questions of what to produce, how to produce, when to produce and for whom to produce. This entails an economic system. These economic issues can be addressed by different economic systems.
These systems can be a capitalist economic system or socialist economic system.
In a mixed market economy like the US economy the demand and supply allocate resources and private ownership of property is protected and the major motive for production is profit and it is based on the assumption of rational self-interest. (TOC 1) This means on the assumptions that people will behave to maximize their benefit minimize cost. As well competition is the cornerstone in the efficient allocation of resources to meet consumer demand and the source of technological advancement on a continuous basis so that the economy grow in a more dynamic manner.
In US Government regulates the economy to encourage competition, provide public goods such as military forces, public schools welfare programs and also formulate fiscal and monetary policy to dampen trade cycles in the US economy particularly after the great depression in the 1930’s. Contrast to this in an economic system, which, is closer to a command economy, or socialist economic system the government intervenes heavily in resolving economic issues and the market plays a minor role.
In a Socialist system the government mostly determines what to produce, how to produce, when to produce and for whom to produce. As well competition is not encouraged and private property is curtailed in a command economy. (U.S. Department of State’s Bureau of International Information Programs,
As discussed above it is obvious that the command economy does well in income distribution compared to capitalist systems. However they are not dynamic and may stagnate and produce shortages because of wrong central plan priorities no incentives and rigidities of the system to respond to changing circumstances and it is undemocratic in essence. In this respect capitalist system is more efficient. That is market economy allocates resources efficiently than command economy.
It is also a fact Capitalist system is prone to shocks and may produce inflation as well it also is prone to trade cycles like boom and bust. For example in US economic history after the great depression 1930.s the economist agreed it is necessary to regulate the economy by fiscal and monetary policy and by micro economic reform and gave birth to the mixed a economy rather than pure capitalist system. (U.S. Department of State’s Bureau of International Information Programs, http://usinfo.state.gov/products/pubs/market/mktec8.htm) There fore one can conclude that all economic system evolve all the time and capitalist and socialist economic systems have strengths and weaknesses.
U.S. Department of State’s Bureau of International Information Programs. GOVERNMENT IN A MARKET ECONOMY. Retrieved on October 2, 2006,
From INTERNATIONAL INFORMATION PROGRAM USINFO.STATE.GOV
Web Site: http://usinfo.state.gov/products/pubs/market/mktec8.htm.