Modern/Mixed Market Economies

Mixed Economies Economy where government intervention and free markets are present. People are able to make economic decisions under the umbrella of government regulations. Most popular economy in the world Why? Freedom to choose, but the choices are regulated for safety.

Public Goods Because markets can’t take care of all demanded goods and services (national defense, roads, highways, libraries, environmental protection, space exploration, etc.), the government is forced to step in. Externalities a consequence on a non-participatory party that is caused by an economic decision of someone else. Negative externality Global warming caused by cars. Positive externality Well-maintained neighborhood.

Circular Flow Diagram A visual representation of the interaction between people businesses to obtain goods and services. It is the flow of work and money within an economy Households: a person or group who owns a factor of production labor Firm: a business or organization that uses resources to produce a product This voluntary exchange (agreement to work) between firms and households factors of production is known as the factor market

The whole process is symbiotic – mutually beneficial. Once a product is made by the firms, households purchase the product using the wages earned this happens the product or goods market. The whole process is symbiotic – mutually beneficial. Everyone has acted out of their own self interest to get what they want. What role does government play here?