Merits of Mixed Economy:

There are several advantages of mixed economy which are as below:

(i) Encouragement to Private Sector:

The most important advantage of mixed economy is that it provides encouragement to private sector and it gets proper opportunity to grow. It leads to increase in capital formation within the country.

(ii) Freedom:

In a mixed economy, there is both economic and occupational freedom as found in capitalist system. Every individual has a liberty to choose any occupation of his choice. Similarly, every producer can take decisions regarding production and consumption.

(iii) Optimum Use of Resources:

Under this system, both private and public sectors work for the efficient use of resources. Public sector works for social benefit while private sector makes the optimum use of these resources for maximisation of profit.

(iv) Advantages of Economic Planning:


In the mixed economy, there are all advantages of economic planning. Government takes measures to control economic fluctuations and to meet other economic evils.

(v) Lesser Economic Inequalities:

Capitalism enhances economic inequalities but under mixed economy, inequalities can easily controlled by the efforts of government.

(vi) Competition and Efficient Production:

Due to competition between both private and public sectors, the level of efficiency remains, high. All factors of production work efficiently in the hope of profit.

(vii) Social Welfare:

Under this system, the main priority is given to social welfare through effective economic, planning. The private sector is controlled by the government. Production and price policies of private sector are determined to achieve maximum social welfare.

(viii) Economic Development:


Under this system, both government and private sector join their hands for the development of socio-economic infrastructures, Moreover, government enacts many legislative measures to safe guard the interests of the poor and weaker section of the society. Hence, for any underdeveloped country, mixed economy is a right choice.

Demerits of Mixed Economy:

The main demerits of mixed economy are as follows:

(i) Un-stability:

Some economists claim that mixed economy is most unstable in nature. The public sector gets maximum benefits whereas private sector remains controlled.

(ii) Ineffectiveness of Sectors:

Under this system, both the sectors are ineffective in nature. The private sector does not get full freedom, hence it becomes ineffective. This leads to ineffectiveness among the public sector. In true sense, both sectors are not only competitive but also complementary in nature.

(iii) Inefficient Planning:


There are no such comprehensive planning in mixed economy. As a result, a large sector of the economy remains outside the control of the government.

(iv) Lack of Efficiency:

In this system, both sectors suffer due to lack of efficiency. In public sector it is so because government employees do not perform their duty with responsibility, while in private sector, efficiency goes down because government imposes too many restrictions in the form of control, permits and licenses, etc.

(v) Delay in Economic Decisions:

In a mixed economy, there is always delay in making certain decisions, especially in case of public sector. This type of delay always leads to a great hindrance in the path of smooth functioning of the economy.

(vi) More Wastages:

Another problem of the mixed economic system is the wastages of resources. A part of funds allocated to different projects in public sector goes into the pocket of intermediaries. Thus, resources are misused.

(vii) Corruption and Black Marketing:

There is always corruption and black marketing in this system. Political parties and self- interested people take undue advantages from public sector. Hence, this leads to emergence of several evils like black money, bribe, tax evasion and other illegal activities. All these ultimately bring red-tapism within the system.

(viii) Threat of Nationalism:

Under mixed economy, there is a constant fear of nationalism of private sector. For this reason private sector does not put into use their resources for the common benefits.