Cambridge IGCSE Economics 0455
Syllabus points
- Define the mixed economic system.
- Explain the role of the private and public sectors.
- Explain how governments intervene to correct market failure.
What is a mixed economy?
A mixed economic system combines the market (private sector) and government (public sector). Most real economies are mixed: markets allocate the majority of resources, while the government intervenes to correct market failure, provide public goods and reduce inequality.
Key definitions
| Term | Definition |
|---|---|
| Mixed economy | An economy where resources are allocated by both the market and the government. |
| Public sector | Government-owned organisations providing goods and services. |
| Private sector | Privately owned firms producing for profit. |
How governments intervene
Governments use several tools to improve on market outcomes:
- Taxes — on demerit goods and negative externalities (e.g. tobacco tax) to reduce consumption.
- Subsidies — for merit goods and positive externalities (e.g. subsidising public transport).
- Provision — directly supplying public and merit goods (defence, state schools, hospitals).
- Regulation and laws — banning or limiting harmful activities (pollution limits, minimum age to buy alcohol).
- Maximum and minimum prices — to protect consumers or producers.
The mixed economy keeps the efficiency of markets while using government to fix market failure and unfairness.
Worked example
In a mixed economy, supermarkets (private sector) compete to sell food efficiently, while the government (public sector) funds hospitals, taxes cigarettes to cut smoking, and enforces pollution limits on factories. The market does most of the allocating; the government steps in where the market fails.
Common exam mistakes
- Describing a mixed economy as purely government-run — the market still dominates.
- Listing only one form of intervention — learn several.
- Assuming government intervention is always successful (evaluate: cost, information, unintended effects).
Exam technique
Explain both sectors, then match each type of market failure to a suitable government policy. For higher marks, evaluate whether intervention actually improves welfare given its costs.
Quick revision
- Mixed economy = market + government.
- Government tools: taxes, subsidies, provision, regulation, price controls.
- Aim: keep market efficiency, correct market failure and inequality.