Definition
A mixed economy is an economic system in which both private decision-making and government action shape how resources are allocated. Most goods and services are produced and traded in markets, but the state provides public goods, regulates business, redistributes income, and corrects market failures.
Virtually every modern economy is mixed. The pure alternatives, a fully free market with no state role or a fully planned command economy, exist mainly as textbook reference points. The real question is not whether to mix but how much weight to give each side.
Why it matters
How it works
Markets handle most production because price signals coordinate buyers and sellers efficiently. The government steps in where markets fail: it supplies public goods that no firm would profit from, regulates monopolies, taxes activities that impose external costs, and runs a social safety net.
The balance varies across countries and over time. Some mixed economies lean toward light regulation and modest welfare; others feature extensive public services and high taxes. Each arrangement trades efficiency, equity, and stability differently.