Economics of state ownership

Question 1

Nationalisation

Answer 1

The transfer of ownership from the private sector to a state owned enterprise

Question 2

State owned industry

Answer 2

Industry that is owned and operated by the government of a country. These industries are often established to provide goods or services that are of strategic importance or that are in the public or social interest. e.g. NHS, Network rail

Question 3

Nationalisation advantages

Answer 3

-Ensures essential services are operated in public interest rather than for private profit
-Resources can be more evenly distributed to achieve greater allocative efficiency
-Focuses on providing high quality services rather than profits

Question 4

Nationalisation disadvantages

Answer 4

-Lack of incentive for innovation and cost-effectiveness
-Lack of innovation
-Risk aversion
-Misallocation of resources-overstaffing or underutilisation of resources

Question 5

Privitisation

Answer 5

The transfer of ownership of a state owned enterprise to the private sector e.g. the sale of BT or British gas

Question 6

Pros of privitisation

Answer 6

-Modernisation and efficiency improves performance
-Makes it easier to introduce contestability to a sector
-Reduction of government spending
-Raises revenue and profits

Question 7

Cons of privitisation

Answer 7

-Decline in service quality as profits may be prioritised
-Job losses to increase efficiency and lower costs
-Higher prices pushed onto consumers to increase revenue and profits