Privatisation Flashcards
what is privatisation
when a state run organisation or activity is sold off to the private sector
whats the idea behind privatisation
2 points
when priv sector in charge of org
ggonna run it more efficient as ogot more profit motive
more comp allowed to occur in mkt - therfore lower costs and £ and increased efficiency
whats a sig +ve of privatisation we forgot to talm bout
as gove privatise a state-owned firm, they can, over the short term, gain a considerable source of revenue that can be utilised to finance other projects.
or simply imporves their fiscal stance
whats a -ve of increased comp
firms may create socia harm and ignoer cost /benefits to make profit
sumup simply the idea behind privatisation
greater efficieny ainss through more comp and profit motives
what graph are we gonna show
monopoly diagram
sa intentions of priv ar eto make a mkt more comp and effiicent
we move to more comp outcomes
so put p= mc QC,Pc
As a result we get a consumer suplus fain
whta are the 3 pros of privatisation
allocative efficieny
lower X inefficney
efficieny incentive whihc drives dyanmic efficicney
what are the 3 cons of privatisation
limited commp can lead to prod and allcoative ineff
loss making services may be cut even if socially desirable
loss of natural monoply and loss of economies of sclae benefits such as P efficiench
explain the allocative efficiny pro
rivatisation icnreases allcoative efificney
as more comp means greater drive for efficiency
so frims strive to produce g/s consumers want + hgih quality g.s
good for consumers theyre satifaction increases and maximimses
get g/s they want at high Q and choices as well as higher quality
explain the x inefficney reduced benefit
this is reduced as firms need to reduce costs to remian competiive and maximise profits
can lead to lwoer prices too/ allow to amke hihger prof as tc decreasing which increases dyno eff potential
explain efficiney incentive whihc drives dynamic efficney
due to profit motive big inenitve for firms to be as efficient as possible
can lead to dynamic efificeny gains which will occur OT
as for frms to gin advantage in higly comp mky s they may need to invest (DE
good for consumers as decrease 3 overtime + means they get better quality goods and services
increases satisfacion - whic is beneficial
explain the -ve of limted comp amy lead to productive and allocative inefficney
we make assumption as soon as gov privatise industy theyll be flock of firm entering (as lower BTE)
But more liekly to be ltd comp in the SR
as takes time for firms to set up and enter
this could lead to P and A inefificney
explain why thers is P inefificney in ltd comp piitn
fimrs wont op on min point of AC curve as ltd comp so dont need to reduce costs and price to be comp and gain market share
explain why there is A inefficient in the ltd comp argument
so why is the levle of comp significant
firms dont need to strive ot hit higest quality , produce where price = mc
withotu high comp we dont have incentives and no guarantee firm will flock ot industry
explain con of loss making services cut even if its socially desirbale
firms dont wanna run and provide loss makin serivces if socilly desirable
as they are profit maxers so if not gonna make a profit , not gonna provide
big problem as consumers want them= missing mkt? ask miss
explain con of los making natual monopoly and loss of EOS beneifts/p efficiency
if before hand theere was a state run natural monopoly benefiiting from huge EOS
by opening it up to more comp you loose EOS , more firms are entering
lead to productive einefficney as AC cnat be minimised becasue
each indi firmcant produce as much so wont be able to exploit all potential EOS
lead to hgiher prices OT
or less profit = no dyno eff = no innovatino beter /cheaoer product OT
WHAT ARE THE 3 POINTS FOR EVAL SUCCES
lvl of comp post privatisation
lvl of gov regulation
what is success
lvl of comp post priv explanatino
if lots of firms dont enter (likely in SR) not inreased comp so we dont see incenitve and beenfits being priduced
if got ltd comp we cna see local monopolies and oligopolies and more -ve social outcomes
how can lvl of comp post priv be overcome
gov reglation
+ in LT more firms lieklt to enter
if gov reg is tight we’ll see more comp outcomes and less monoply/oligopol
if weka we see existence of monp and oligop which not good
explain eval gov reg
gov can refulate wehther firms forced to provide socially desirable g/s may overcome the loss making g/s arg
gov may be strict in terms of firms having to tke into acount EC/EB
Going on from gov reg argument why wont firms take into account EC or benefits
they have a profit motive so ifgnoe it
due to self interest
but if gov reg increses frims may have to take em into account through tax /reg which reduces that problem
explain eval of what is success
are we looking at whether gov , firms or consumers succeed
who is most important to suceed
privatisation is a gov action so ultimatley they want consumers to succeed which with slight regulation they will
more ouptu = more jobs
