Cambridge International as and a level Economics Ebook

Price and output decisions under 
nationalisation and privatisation
Privatisation
is a process whereby there is a change in 
ownership of an activity from the public or state sector to 
the private sector. In the UK, for example, important former 
nationalised industries such as coal, gas, water, electricity, 
telephones, railways and bus services were privatised in 
a very short period of time from the mid-1980s to the 
mid-1990s. Privatisation has also been prevalent in other 
developed economies, emerging economies like China and 
the new EU members from Central and Eastern Europe, 
and in many developing economies.
Privatisation: 
 
where there is
 
a change in ownership from 
the public to the private sector.
KEY TERM
Th
ere are many reasons for privatisation, some political as well 
as economic. From a microeconomic perspective, the most 
signifi cant is the belief that breaking up a state monopoly will 
produce greater effi
ciency. In other words, it is believed that 
the private sector will be able to achieve a better allocation of 
resources than a nationalised industry. In part this comes about 
because the managers of private companies are accountable 
to their shareholders; in contrast, the general public has only 
limited property rights over a nationalised company.
X-ineffi
ciency is also relevant. As we saw in 
Chapter 6,
this is a situation where, in this case, a nationalised company 
is likely to become increasingly ineffi
cient over time. 
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Cambridge International A Level Economics

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that is fair or just. Th
is distribution could be of income, 
poverty, government benefi ts, wealth and so on. A fair 
distribution of income, for example, is not the same as an 
equal distribution of income.