Economics IGCSE Edexcel - The Mixed Economy

The Public Sector - a range of organisations, often provided free by the state or paid for from tax revenue to provide services that are often neglected by the private sector. Generally, they aim to create social benefits, improve quality of services and minimise cost.

The Private Sector- individuals or groups of individuals create firms with the aims of making profit. They can be sole traders (one person), partnerships (two or more people) or companies which are owned by shared holders and have an elected board of directors to run the business.


Mixed Economy- relies on both the public and private sectors to provide goods and services.

What to produce- merit goods (goods not provided by the private sector) such as education and street lighting are provided by the public sector. Goods such as clothes and leisure are provided by the private sector.

How to produce- mostly produced by the private sector. Even most public sector services are provided by the private sector.

For whom to produce- goods produced by the private sector are sold to anyone who can afford it while goods produced by the public sector are generally provided to everyone for free.

Market failure: this is where markets lead to inefficiency where resources are wasted. The public sector is generally used to counter market failures.

Examples of Market Failures:

1. Externalities- a firm may create negative externalities (problems for the 3rd party) such as pollution. The role of the public sector is to impose laws or fines to force the firms to pay the cost created by the externalities or to stop making externalities.
2. Lack of competition- the public sector is also used to increase competition so that consumers are not exploited.
3. Missing markets- public goods cannot be charged directly by firms. Examples of public goods include street lighting or water supply. These must be provided by the public sector.