Public Ownership, Privitisation, Regulation And Deregulation Of Markets Flashcards
What is nationalisation ?
Nationalisation occurs when private sector assets are sold to the public sector. In other words, the government gains control of an industry, so it’s not longer in the hands of the private firms
What are the negatives of nationalisation ?
By nationalising an industry, natural monopolies are created resulting in little competition
Due to the natural monopoly there is no incentive to lower AC and a lack of competition can cause X inefficiency
Government must spend tax revenue on maintaining the industry which comes at an opportunity cost
What are the positives of nationalisation ?
Some nationalised industries yeild strong positive externalities. For example by using public transport, congestion and pollution is reduced
Nationalised industries have different objectives to privatised industries, which are mainly profit driven. Social welfare may be a priority for a nationalised industry
What is privatisation ?
Privatisation means that assets are transferred from the public sector to the private sector. In other words, the government sells a firm so that it’s no longer in their control. The firm is left to the market and private individuals
It also covers deregulation of the market
What are the the positives of privatisation ?
Free market economists will argue that the private sector gives firms incentives to operate efficiently, which increases economic welfare. This is because firms operating in the free market have a profit incentive, which firms which are nationalised do not
Since they’re operating on the free market, firms have to produce the goods consumers want. This increases allocative efficiency and may mean goods and services are at a higher quality
Competition may also reduce prices
By selling the asset, revenue is raised by the government. However this is a one-off payment
What could be the negatives of privatisation ?
Prices could increase
Exploitation of natural resources
Potential lack of access to services for low income groups
What is regulation and deregulation ?
Regulation can be described as a form of government intervention in markets that involves rules and their enforcement
Deregulation is removing those rules or enforcements
What are the positives and negatives of regulation in the market ?
Regulation of the market can lead to positive externalities such as a more productive work force as a result of children being in education until they’re 18
If there was a compulsory recycling scheme, it would be difficult to police and there would be high administrative costs
Bans could be enforced on harmful goods however they’d still be sold on the black market
Firms which fail to follow regulations could face heavy fines, which act as disincentives to break the rules
It could raise costs of firms, who pass the price onto the consumer
What are the positives and negatives of deregulation of a market ?
Deregulation is the acts of reducing now much an industry is regulated. It reduces government power and enhances competition
Excessive regulation is called red tape. It can limit the quantity of output thag a firm produces. For example, environmental laws may result in firms only being able to produce a certain quantity of goods before exceeding
Excessive taxes such as high rates of corporation tax may discourage firms from earning above a certain profit which limits their ability to grow
