Privatisation and Externalities

Question 1

What is privatisation?

Answer 1

The selling of public sector resources to the private sector

Question 2

How does privatisation take place (4 steps)?

Answer 2

1. Sale of nationalised industries
2. Deregulation
3. Contracting out - government offers public sector jobs
4. Sale of land and property

Question 3

Give four reasons why organisations privatise.

Answer 3

To increase government revenue
To improve level of efficiency/quality of goods
To increase level of competition in market
Removing political interference

Question 4

State 3 ways privatisation affects consumers.

Answer 4

Reduction in prices for services - rises for some
More innovation
Improvement of services

Question 5

State 2 ways privatisation affects workers.

Answer 5

Reduction in staff to improve efficiency

Pressurised to raise productivity

Question 6

State 3 ways privatisation affects firms.

Answer 6

Objectives become more profit-driven
Increased investment in technology
More mergers and acquisitions

Question 7

State 3 ways privatisation affects the government.

Answer 7

Large amount of revenue generated
Expensive to advertise and arrange using tax money
More focus on running the government

Question 8

State 4 ways privatisation affects the economy.

Answer 8

More efficiency due to increased competition
Lowered costs
More innovation
Less waste/better resource allocation

Question 9

What are externalities?

Answer 9

The spillover effects on third parties not associated with the consumption/production of a good or service

Question 10

Name five positive externalities.

Answer 10

Job creation
Infrastructure development
Training and education
Research & development
Improved technology

Question 11

Name five negative externalities.

Answer 11

Traffic congestion
Pollution (Noise/air/water)
Overcrowding
Resource depletion
Negative health conditions

Question 12

How do taxes reduce externalities?

Answer 12

It increases the cost of the product, making the supply curve shift inwards.

Question 13

What are the 2 advantages and 1 disadvantage of taxation as a policy?

Answer 13

Strengths:
Can earn government revenue
Unavoidable for consumers

Limitations:
Expensive to administer, collect and monitor

Question 14

How do subsidies reduce externalities?

Answer 14

They offer financial incentives to producers to reduce negative externalities.

Question 15

What are the 2 advantages and 2 disadvantages of subsidies as a policy?

Answer 15

Strengths:
Increases supply (Q↑)
Encourages more purchase - price decreases

Limitations:
Expensive for government
Can lead to businesses being inefficient

Question 16

What are pollution permits?

Answer 16

Permits that allow firms a licensed allocation to pollute

Question 17

When is a production externality positive?

Answer 17

When its private cost is greater than its social cost

Question 18

When is a consumption externality negative?

Answer 18

When its private benefit is greater than its social benefit

Question 19

What are the 3 advantages of pollution permits as a policy?

Answer 19

Controls overall pollution
Tradeable scheme - more expensive to pollute
Incentivises firms to find alternatives

Question 20

What are the 3 disadvantages of pollution permits as a policy?

Answer 20

Difficult to enforce/regulate
Firms need to monitor pollution
Must be widely used to be effective