When competitors agree to set the same price for a product, they’re engaging in price fixing. This is a direct attempt to remove price competition and keep prices at a level they choose together, rather than letting the market determine them. It can be done through explicit agreements or through informal understandings, and it’s considered anti-competitive and illegal in many places because it harms consumers by keeping prices higher than they would be in a competitive market. Price discrimination, in contrast, involves charging different prices to different buyers based on willingness to pay, not agreeing on one shared price. Market sharing is about dividing up markets—such as by geography or customer type—so each firm sells in its own segment, which may involve different pricing strategies but is about allocation of markets, not fixing a single price across firms. Collusion is the broader idea of firms cooperating to influence outcomes, with price fixing being a specific form of collusion.

Mixing private and public sectors describes an economy where both play important roles. In a mixed economy, most production and prices are driven by markets and private firms, but the government steps in to provide public goods and services (like defense, education, healthcare), regulate markets to prevent abuse, and redistribute income to improve fairness. This combination aims to keep efficiency from market forces while addressing what markets alone might miss, such as social welfare or environmental protection. The other systems rely almost entirely on one sector. A market economy centers on private decisions with little government intervention. A command economy is dominated by government planning and state ownership. A traditional economy follows longstanding customs and practices. Therefore, the system that fits the description of both private and public roles is the mixed economy.

Allocative efficiency means resources are used to produce the mix of goods and services that society values most, with prices guiding production to match consumer preferences. However markets don’t always do this because of certain failures. Externalities occur when the actions of buyers or sellers affect others who aren’t involved in the transaction. Negative externalities (like pollution) impose costs not reflected in market prices, leading to overproduction; positive externalities (like vaccination) create benefits not captured by prices, leading to underproduction. Government can correct these by taxes or regulation on negative externalities, or subsidies for activities with positive externalities, helping private costs and benefits align with social costs and benefits. Public goods, such as national defense or street lighting, are often underprovided in a free market because people can free-ride on others’ contributions. Government provision ensures these goods are available. Information gaps can cause buyers or sellers to make choices that don’t reflect true costs or quality, leading to misallocation. Regulations, standards, and information disclosures help everyone make better-informed decisions. Equity considerations address the fairness of outcomes. Some resource allocations that are efficient in a narrow sense may be viewed as unfair, so government redistribution can improve overall welfare and move the economy closer to a socially desirable allocation. Other choices ignore these market failures or assume government action always reduces efficiency, which isn’t generally true and doesn’t reflect how intervention can correct misallocations.

When a negative externality exists, social costs exceed private costs, so too much is produced from the viewpoint of society. The way to fix this is to raise the private cost per unit to match the social cost, nudging the market toward the socially efficient level. A Pigouvian tax does exactly that by charging a per-unit tax equal to the external cost. This makes producers face higher costs, reducing output until the private and social costs align. Regulation works similarly by imposing standards or limits that raise production costs, forcing behavior changes that lower output to the socially optimal point. Subsidies would decrease costs and encourage more production, making the externality worse. Price ceilings and non-price rationing affect pricing or allocation but don’t specifically internalize the external cost. Tariffs and quotas influence trade and quantities but aren’t targeted tools for aligning private costs with social costs in domestic markets.