Privatisation and Nationalisation

Question 1

What is nationalisation?

Answer 1

when the government take control of an industry previously owned by private firms.

Question 2

Give 9 causes of market failure

Answer 2

Public Good
Inequality
Monopoly
Merit Good
Factor immobility
Agriculture
Cyclical instability
Externalities
Demerit Goods

Question 3

What is cyclical instability?

Answer 3

when a macroeconomy enters recession or experiences inflationary boom

Question 4

How could agriculture lead to a market failure?

Answer 4

volatile prices, fluctuating weather and externalities

Question 5

What is a monopoly and how can this lead to a market failure?

Answer 5

where a firm dominates an industry so they are able to set higher prices

Question 6

How can factor immobility lead to market failure?

Answer 6

geographical unemployment where people find it difficult to move to areas with jobs

Question 7

Give two points against nationalisation

Answer 7

Lack of Innovation (Dynamically Inefficient)​

Lack of Competition​

Use of Tax Money / Burden on Tax Payer​

No Pressure on Cost Cutting (X-Inefficiency)​

No Guarantee of Lower Prices​

(Uncompetitive against International Competition)​

Question 8

Give two points for nationalisation.

Answer 8

Natural Monopoly​

Profit Shared with Taxpayer​

Capturing Positive Externalities​

Increased Welfare – Rising Standards of Living / Less Absolute Poverty​

Industrial Relations – Unionised workers treated better by the government​

Less Market Failure from Monopoly Power Abuse​

Question 9

Give two points for privatisation.

Answer 9

Efficiency Gains​

Lack of Political Interference​

Longer Planning Strategies​

Pressure from Shareholders​

Increased Competition​

Government Revenue from Sale​G

Question 10

Give two points against privatisation

Answer 10

Competition Reduces Natural Monopoly Advantage​

Quantity of Public Service Reduced for Profit​

Government Loses Revenue​

Problems of Regulating Private Monopolies​

Fragmentation – Service Divorced from Infrastructure​

Short-Termism of Firms​