Chapter 11/12 Flashcards
Mixed economy and privatisation
Define economy
A system that attempts to solve the basic economic problem.
What is the difference between the private and public sector?
Provision of goods and services in the economy controlled by individuals/government.
What are the aims of the private sector?
Survival, to generate profit, social responsibility and growth.
What are the aims of the public sector?
Improve quality, minimise costs, profits
What are the different types of economy?
- Market/free economy (capitalist)
- Command/ planned (communist)
- Mixed economy
What is a mixed economy?
Economy where goods and services are provided by both public and private sector.
What does the mixed economy decide?
- What to produce
- For whom to produce
- How to produce
What types of good are best produced by the public sector and why?
Merit goods, goods which are underprovided by the private sector.
If these goods were produced only by the private sector, they would be provided inefficiently.
For whom does the public sector produce goods for?
Everyone
For whom does the private sector produce for?
Anyone that can afford it
What is market failure?
Economy where goods/services are provided inefficiently.
What causes market failure?
Negative externalities
Monopolies
Missing markets
Lack of information
Factor immobility
How can governments intervene to avoid market failure?
- Businesses which impose neg externalities may be fined/regulated
- Uses laws to prevent monopolies from exploiting
- The internet has allowed for info to spread quickly.
- Can retrain workers, but can’t do much about machinery.
What’s a public good?
What’s a merit good?
- Goods not likely to be provided by the private sector
- Goods under-provided by the private sector.
What are the characteristics of public goods?
Non-excludability: Cannot stop someone from consuming it/individual cannot deny consumption.
Non-rivalry: The consumption of one person of a good will not reduce another.
Explain the free rider problem.
If only the private sector ran the provision of public goods, it would be difficult to charge them.
Free rider- Someone who enjoys the benefit of a good but allows other to pay for it.
Define privatization.
The act of selling a company owned by the government to a private investor.
Give 3 reasons for privatisation.
- To generate income.
- Public sector organizations were inefficient
- To reduce political interference.
Why does the private sector usually produce at a higher quality than the public sector?
Held at a higher standard/accountable + has the incentive to generate more money.
Who is affected by privatisation?
Consumers
Workers
Business
Government
How does privatisation affect consumers?
Hoped to increase quality bc owners will want to make profit.
Taxpayer may feel pressure though if gov pays subsidies.
How does privatisation affect workers?
Workers may be redundant (fired) to reduce costs, remaining workers will feel this pressure.
How does privatisation affect the government?
Earn a huge amount of revenue quickly. But people criticize the cost of sale + amount spent on advertising.
How does privatisation affect the business?
More money invested, business may diversify into new areas.
