Section 4 Modern Economies
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Objectives
After studying this section you will be able to:
- Explain the rise of mixed economic systems.
- Interpret a circular flow model of a mixed economy.
- Compare the mixed economies of various nations along a continuum between centrally planned and free market systems.
- Understand the role of free enterprise in the economy of the United States.
Section Focus
It is doubtful that any nation can exist successfully under a pure centrally planned economy or a pure market economy. Most modern economies mix features of both systems. The economy of the United States is based on the principles of the free market.
Key Terms
- laissez faire
- private property
- free enterprise
- continuum
- transition
- privatize
You cannot find today any economic system that relies exclusively on central planning or the individual initiative of the free market. Instead, most economies are a mixture of economic systems. Most contemporary mixed economies blend the market with government intervention, or involvement, in the marketplace.
The Rise of Mixed Economies
No single economic system has all the answers. Centrally planned economies are cumbersome, do not adequately meet consumer needs, and limit freedom. Traditional economies have little potential for growth or change. Even market economies, with all their advantages, have certain drawbacks.
The Limits of Laissez Faire
Adam Smith and other early free market philosophers believed that, left to its own devices, the free market system would provide the greatest benefit for consumers and raise the standard of living.
Most public parks rely on government dollars for support.
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