The Market Mechanism [2]
- Created by: ekenny5
- Created on: 14-04-22 15:51
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- 4.1.8 The Market Mechanism [2]
- Public ownership
- the provision of goods and services by the government
- eg education and healthcare
- - greater productive efficiency through EoS - strategic control of important industries - ^ welfare - long term investment strategies - gov revenues
- - high initial costs - discourage private sector investment - usually less efficient than private firms - high expenditure - increased debt - changing political agendas may mean projects are unfinished
- the provision of goods and services by the government
- Privatisation
- the transference of assets from the gov to privately owned businesses
- - productive efficiency - innovation from investment - allocative efficiency - competition - injection to gov from sale
- - abuse of market power - lack of public interest - regulatory issues - breaking up industries - short termism - profit over investment - selling public property
- horizontally - selling a single supplier
- vertically - unable to own multiple stages of production
- Regulation
- creation of rules and sanctions within an industry to modify the behaviour of firms
- external (outside the industry) or self-regulation (within the industry)
- - protect from monopoly power - encourage low costs - ensure quality - reduce monopolistic power
- - socially inefficient - costly to gov - inefficient for firms - less competitive - regulatory capture - firms can often get around/ find loop holes in regulation
- Deregulation
- the opening up of markets to new competition from the removal of barriers to entry
- - increased competition - lower prices for consumers - regulation is costly - greater choice - productive and allocative efficiency - freedom for firms
- - natural monopolies may mean private firms become monopolies - under-provision of goods - compromise quality - can lead to crisis - deregulation of the banks leading to the 2008 financial crisis
- Regulatory capture - regulators acting in the interest of the firms rather than the consumer - sympathetic towards firms
- Regulation
- creation of rules and sanctions within an industry to modify the behaviour of firms
- external (outside the industry) or self-regulation (within the industry)
- - protect from monopoly power - encourage low costs - ensure quality - reduce monopolistic power
- - socially inefficient - costly to gov - inefficient for firms - less competitive - regulatory capture - firms can often get around/ find loop holes in regulation
- Regulation
- Government intervention
- market failure causes the need for government intervention
- price controls - max or min prices to incentivise either consumption or production
- leads to excess supply/ demand
- state provision - re-nationalisation
- Regulation
- Taxation - discourage consumption and production. Either indirect or direct
- source of gov revenue
- can be regressive
- source of gov revenue
- subsidies - encourage consumption and production
- costly to the gov & firms become reliant
- increased competitveness
- extension of property rights - give responsibility for externalities
- Pollution permits - internalise externalities and create a market to reduce production
- Government failure
- lack of incentives - no profit motive in the public sector
- poor information
- asymmetric
- political goals and interference over economic theory
- when government intervention leads to an inefficient allocation of resources
- lack of consistency - changing governments with different aims
- moral hazard - encourage risk taking if they can fall back on the government
- regulatory capture
- unintended consequences - creating new problems/ worsening existing ones when trying to solve them
- Public ownership
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