An economic system depicts how production, distribution and consumption of goods and services is managed in an economy. The factors of production (Land, Labour, Capital and Entrepreneurship) needed for any economic system to function are limited [CITATION Geo08 \l 2057] and as a result the resources must be allocated efficiently and effectively to get the optimum benefit.
The mixed economy is a combination of two economic approaches, the free market economy and the planned economy. Before discussing the mixed economy, the other two approaches will be briefly covered as follows:
FREE MARKET ECONOMY
In this economic system goods and services are allocated by market price without any intervention from the government, also known as Laissez-faire economy. Those who are willing and able to pay the market price for various goods and services get those goods and services [CITATION Geo08 \l 2057] .
Adam Smith, a Scottish moral philosopher and a pioneer of political economics, was of the opinion that if everybody acts from self-interest, spurred on by the profit motive, then the economy will work more efficiently, and more productively, than it would do were economic activity directed instead by some sort of central planner [CITATION Geo08 \l 2057] .
This is represents the summit of capitalism. In reality, a perfectly free market economy is a myth, it only exists in the wild where humans do not intervene and where it is the case of survival of the fittest [CITATION Geo08 \l 2057] .
The free market economy often creates problems of selfish interest abandoning and abusing communal resources in society (such as the Tragedy of the commons [CITATION Geo08 \l 2057] ), creating monopolies and oligopolies, and may relegate the less fortunate to persistent poverty. Capital flows to where it will get the highest return, this may engender a gap between the rich and the poor. With this in mind, Adam Smith recognised that some government action might be needed, such as to impose antitrust laws, enforce property, and to provide policing and national defence [CITATION Geo08 \l 2057] .
PLANNED ECONOMY
In a planned economy, resource allocation is determined by a central authority (usually the government) rather than by demand and supply. This is normally practised by socialist countries such as North Korea and Cuba. The central authority determines the quantity of goods and services produced in the economy.
A planned economy, in theory, does not suffer from business cycles, asset bubbles Such as the tech bubble in the late 1990's and housing bubble mid-2000 [CITATION Geo08 \l 2057] .
However, a planned economy lacks the kind of flexibility that is present in a free economy, and because of this, it reacts slower to changes in consumer needs and fluctuating patterns of supply and demand. This is so as the government is reliant on taxes and inefficiently responds to the price signals imposed by the market.
The performance of nationalised firms has often been poor compared with their private-sector counterparts. State-owned businesses often enjoy a legally protected monopoly, and the lack of competition means the firms face little pressure to be efficient.
Politicians often interfere in important management decisions, making it harder to take unpopular actions on pay, factory closures and job cuts, particularly when there are strong public-sector trade unions and a union-friendly government.
Royal Mail is a good example of how the government impeded it from taking on sensible business strategies and modernising its operations. It was a legally protected monopoly till 2006 following the liberalisation of the postal market which opened the door to newer and more efficient competitors, leading to fall in revenue.
Politically imposed financial constraints may also force public-sector firms to under invest. Although privatisation has not been universally beneficial, on balance it has increased economic efficiency.
MIXED ECONOMY
The mixed economy is a hybrid of the free economy and the planned economy. It reflects the fact that both market and government participation is required in the allocation of resources, as both systems have disadvantages which are corrected by the other. It includes both capitalist and socialist economic policies and often arises in societies that seek to balance a wide range of political and economic views [CITATION Geo08 \l 2057] . The mixed economic system is used in most countries, but the extent of the influence of the market or government varies. The UK with Gordon Brown as Prime Minister was more geared to social service provisions whereas David Cameron is more geared towards a higher degree of public-private partnerships.
The UK for example is a mixed economy with a majority of decisions made by the market due to the high level of efficiency in responding to the needs of consumers and some by the government. The government provides free health services through the NHS Trust to its citizens, but also employs private consultancy firms who ensure the trust is running efficiently. In a mixed economy, individuals can help guide the economy not only through the choices they make as consumers but through the votes they cast for officials who shape economic policy.
John Maynard Keynes thought it would be beneficial for the government to use fiscal and monetary measures to mitigate the negative impact of economic recessions, depressions and booms [CITATION Geo08 \l 2057] . Keynesian economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and therefore advocates active policy responses by the public sector, including monetary policy actions by the central bank and fiscal policy actions by the government to stabilize output over the business cycle. The events of the recession in 2007 saw a resurgence in Keynesian thought. World leaders have used Keynesian economics to justify government stimulus programs for their economies [CITATION Geo08 \l 2057] .
During the last two decades of the 20th century, many governments committed to the free market pursued policies of liberalisation based on substantial amounts of deregulation hand-in hand with the privatisation of industries owned by the state. The aim was to decrease the role of government in the economy and to increase competition. Even so, red tape is alive and well. In the United States, with some 60 federal agencies issuing more than 1,800 rules a year, in 1998 the Code of Federal regulations was more than 130,000 pages thick. However, not all regulation is necessarily bad. According to estimates by the American Office of Management and Budget, the annual cost of these rules was $289 billion, but the annual benefits were $298 billion [CITATION Geo08 \l 2057] .
Q2. FACTORS THAT DETERMINE THE EXTENT AN ECONOMY IS MIXED
In a mixed economy, some of the factors that determine the extent to which a market is either more of planned or free market economy are as follows:
POLITICAL IDEOLOGY
In individualist societies, as is the case in most western countries, the economy is normally geared towards a free market economy as self-interest is encouraged in society, with ownership of land and capital in the hands of private individuals. However, in collectivist societies, the economy is geared towards a planned economy where land and capital are collectively owned.
POLITICAL SYSTEM
In countries where a democratic system of government is in place, the economy is geared towards a free market economy. This is the case as the citizens dictate what is best for themselves by way of voting. In socialist countries the economy is geared towards a planned economy, as the central authority dictates what is best for its citizens.
GOODS PRODUCED
Goods can be classed as either necessity goods [CITATION Geo08 \l 2057] or desirable goods [CITATION Geo08 \l 2057] . Where a majority of goods produced in an economy are necessity goods the economy tends to be a planned economy as the government deems them necessary for the upkeep of its citizens. Totally free market goods tend to produce more of desirable goods as this responds to the forces of demand and supply where goods are made only if there is a demand for it.
SPENDING LEVELS
In countries where a majority of the economic output are bought by consumers they tend to be more of a free market economy. In the United States for instance, almost two-thirds of the nation's total economic output goes to individuals for personal use [CITATION Geo08 \l 2057] . In planned economy like Cuba a majority of the goods are bought by the government with little being purchased by individuals.
ECONOMIC CYCLE
Depending on prevailing times the goods and services can transit from one end of the spectrum to the other. During economic downturns the government tend to increase their involvement to stimulate the economy from further contraction. The recent recession made the banking sector, in a number of major economies, enter the planned economy spectrum from being at the extreme end of free market economy. The crisis was followed by the nationalisation of banks, such as Northern Rock, and increase in regulations such as the US federal rules of civil disclosures [CITATION Geo08 \l 2057] . In times of booms, regulations are sometimes relaxed to take advantage of it pushing the economy towards a free market economy. Since 1980, regulations were progressively relaxed until they have practically disappeared [CITATION Abo101 \l 2057] .
LEVEL OF LITERACY
Social factors also play a significant role in determining the extent to which an economy is mixed
Fiscal policy
Monetary policy
Education
Existence of an efficient market
