Understanding Mixed Economy and Market Failures

Key System: Mixed Economy

• Inequality in the initial allocation of property
• Collective basic needs
• Natural monopolies

MARKET FAILURES:

• Cycle (the market cycle is critical, not growing)
• Externalities (effects outside a company)
• Public goods (the market has great agility to respond to the demand for private goods, but cannot provide the amount of public goods needed)
• Lack of competition (monopoly)
• Equity (the market generates a very uneven income distribution)

Cycle:

Boom, Recession, Depression, Recovery

Or Neo-Monetarists	Neo-Keynesians
Heirs to the tradition of liberalism They claim the full autonomy of the market The state should limit itself to ensuring a free market and controlling the amount of money and inflation. They criticize the weight of the state in the economy, as well as the fiscal mechanisms used.	Maintain the Keynesian approach on the need for government intervention. The market alone does not guarantee balance and full employment. Market failures require correction. The state should intervene. They propose the economics of welfare or the welfare state.

Pure Public Goods:

Type of goods whose consumption is indivisible and cannot exclude anyone. They are offered to everyone.

Imperfect Competition:

Type of market in which one or more companies are powerful enough to influence the price and quantities of goods and services offered.

Equity: The principle that people who are in similar circumstances must pay their taxes and receive the same type of benefits. Those enjoying a higher standard of living must pay taxes and receive fewer benefits.

Public Sector Functions and Economic Policy:

a) Regulate economic activity: through laws regulating private property.

b) Produce and provide goods and services: education, health, etc.

c) Establish the tax system: public spending is financed through taxes.

d) Redistribute income: to reduce inequalities, the state establishes laws to ensure greater equity, such as minimum wage.

e) Stabilize the economy: economic policy aims to achieve economic objectives.

Situational Policies:

Fiscal Policy: Improving economic activity by increasing public spending or lowering taxes.

Monetary Policy: The central bank sets the interest rate or controls the movement of money (it can change the conditions for obtaining credit and loans).

Foreign Policy: The state restricts import or export phenomena, sets exchange rates, and determines the price of domestic currency in relation to foreign currencies.

Incomes Policy: The state can curb rising product prices and regulate wages.