Mixed economy Flashcards
What is the private sector?
The provision of goods and services by businesses that are owned by individuals or groups of individuals
What is the public sector?
Government organisations that provide goods and services in the economy or government organisations that fund the provision of goods and services in the economy
What are Shareholders
People or organisations that own shares in a company
What is a Sole Trader
Where the business is owned and controlled by one person
What is Partnership
Where the business is owned and controlled by two or more people working together.
Dividends
The part of a company’s profit that is divided among shareholders
Mixed economy
An economy where goods and services are provided by both the private and the public sectors
Market failure
The misallocation of resources in an economy leading to inefficiency
Public goods
Goods that are not likely to be provided by the private sector, as it is virtually impossible for private firms to charge users for their consumption. This is due to their non-excludability and non-rivalry characteristics.
Non-excludability
Once a public good is provided in the market, any individual consumer cannot be prevented or excluded form its consumption
Non-rivalry
The consumption of a good by one individual cannot reduce the amount available to others
Free rider
An individual who enjoys the benefit of a good but allows other to pay for it
Privitisation
The act of selling a company or activity controlled by the government to private investors
Nationalisation
The act of the government buying a company or activity controlled by a private firm
What are the aims of private sector business:
Survival - customers need to be established, staff and survival is complicated when setting up a business
Profit maximisation- making money for shareholders or owners
Growth - to access EOS
Social responsibility- to be good corporate citizens
Why would the government privatise companies?
- to generate quick profit
- increase efficiency
- reduces fiscal burden if running these companies costs too much
- encourages new firms to enter the market as there is a financial incentive to compete and no legal barriers of entry
- Generates taxable reveunes
- promotes efficiency as governmental companies had low eficiency due to low competition which is usually not the case with firms, and less red tape/bureacracy and political interference
What are regulators?
- When the government sells a nationalised industry, it becomes a private monopoly.
- This means that the firm can exploit consumers through charging really high prices
- A regulator oversees the activities of this firm to make sure that it does not abuse its monopoly or cut non-profitable practices
What are the advantages of consumers of:
Privitisation
- more competition
- less political interference
- more choices
What are the disadvantages of:
Privitisation
- firms will try to maximise their profit which can lead to low innovation, bad customer service and high prices
- quality of products can go down if firm seeks to maximise profit
- may only focus on big cities if rural areas are not profitable
Consumer benefit depends on what after:
Privitisation
Levels of competition in the market, with high being good for consumer and low being bad.
Factors for workers after:
Privitisation
- Higher pay
- Capital can make work more productive
- oppurtunities for promotion
- expansion of the firm can raise employment
- Better working condition
What are the factors against workers after:
privitisation
- Workers could get fired if capital replaces labour
- Private sector could cut costs and get rid of workers or cut wages
- Potential to exploit workers in terms of wage and hours
What are the factors for:
Privitisation benefiting business?
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- Firms will not waste useless money as they try to make the largest profit
- Firms have less regulation which reduces bureacracy
- firms will try to maximise efficiency as it leads to a higher profit
- Less political interference
- promotion of competition
- increase in revenue
- exploitation of economies of scale
What are the factors against:
Privitisation benefiting business?
- Monopoly power can be expolited by making a low qulaity product and selling it for a lot
- no guarantee or funding
- potential diseconomies of scale
- process can be disruptive and firm may not survive without government influence
What are the different types of:
Economies
- Capitalist/free market
- planned or command system
- mixed economy
What are the features of a:
capitalist system
- Economy depends on supply and demand(market forces)
- Usually has a capitalistic government
- Factors of production driven by supply and demand
- Good for economic growth
Features of a:
Planned economy
- Usually communist government
- Government controls the prices
- usually is not very good for economic growth
- Slow to adapt to change in consumer’s wants
What are the factors for the:
Free market economy
- High efficiency as competition motivates firms and workers are paid for the value of their work
- Consumers have a lot of choices as there are a lot of producers and competition
- High economic growth which can lead to high standards of living
- Adaptable depending on consumer needs
- Encourages innovation
What are the factors against:
Free market economy
- Inequality as there would be a very large difference between poor and rich
- no essential public good regulation which can lead to ridiculour prices e.g. a pound a litre of water
- Economic system can be bad at some times e.g. 2008 house market
- potential for monopolies
- may underserve rural areas
- potential for unemployment
What are the advantages of the:
Planned economy
- Equality due to central planning meaning that everyone will have enough money to live
- Stability which can combat price inflation and be useful in crises
- Prioritizes soical goals meaning there will be very good public services
- no unemployment
What are the disadvantages of the:
Planned economy
- Low economic growth
- Limited choices when a person wants to buy a good or service
- low flexibility to consumer wants which are primarily ignored due to government deciding everything
- Hard work is not rewarded, so very low efficiency
- Less innovation
