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Economic Theory

3) absence of technology: Work is monotonous and no freedom is
given. Any change in the production process will alter the entire plan.
Hence any innovation cannot be easily enforced. Everything is rigid and
technological changes are limited;

4) absence of competition makes the system inefficient.

5. Mixed Economy
In a mixed economy, both public and private institutions exercise
economic control. The public sector functions as a socialistic economy and

the private sector as a free enterprise economy. All decisions regarding
what, how and for whom to produce are taken by the State. The private
sector produces and distributes goods and services. It manufactures

consumer and capital goods in the interest of public welfare. A mixed
economy possesses the freedom to hold private property, to earn profit, to
consume, produce and distribute and to have any occupation. But if these
freedoms affect public welfare adversely, they are regulated and controlled

by the State.
The main features of Mixed Economic system are:
1) co-existence of public and private sectors: In a mixed economy,

both the public and the private sectors initiatives will be there. The most
strategically and nationally important sectors of the economy will be
reserved for the public sector. The rest will be left for private operation.
While the public sector will have social welfare as the prime motive, the

private sector will function with profit motive;
2) consolidation of merits of Capitalism and Socialism: As seen

above, both capitalism and socialism have merits and demerits. Mixed
economy is expected to retain only the merits of the two systems. For
instance, the government is expected to allow private investment, but the
government also controls monopolies;

3) planning: economic planning is another important feature of the
mixed economy. Planning will direct the relative roles of public and
private sectors and their respective jurisdictions.

Merits of Mixed Economy are:
1) efficient resource utilization: the resources are utilized efficiently as
good features of both capitalism and socialism coexist. If there is
misallocation of resources, the State controls and regulates it. This ensures

the efficient utilization of resources;

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