Which of the following describes a mixed economy?

Answer & explanation

Correct answer: option 4

The correct answer is Option (4) → An economy in which the government and the market together answer the three questions of what to produce, how to produce and how to distribute

In a mixed economy, the government and the market together answer the three questions. The market supplies what it can; the government supplies essential goods the market fails to provide.

Option (1) An economy in which the market forces of supply and demand alone decide what, how and for whom to produce — Incorrect. This is capitalism.

Option (2) An economy in which the government decides what goods are to be produced in accordance with the needs of society — Incorrect. This is socialism.

Option (3) An economy in which goods are distributed only on the basis of purchasing power — Incorrect. Distribution by purchasing power is a feature of capitalism.

Option (4) An economy in which the government and the market together answer the three questions of what to produce, how to produce and how to distribute — Correct. Most economies are of this kind.

NCERT (2026-27): “Box 2.1: Types of Economic Systems … Strictly, a socialist society has no private property since everything is owned by the state. In Cuba and China, for example, most of the economic activities are governed by the socialistic principles. Most economies are mixed economies, i.e. the government and the market together answer the three questions of what to produce, how to produce and how to distribute what is produced. In a mixed economy, the market will provide whatever goods and services it can produce well, and the government will provide essential goods and services which the market fails to do.”