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iGCSE Edexcel Economics Notes

  • a market is a place where buyers and sellers meet to exchange goods and services
  • market failure is when the market allocates goods and services at a wrong price or quantity
    • complete market failure: MISSING MARKET
    • partial market failure
  • public goods: non-rival and non-excludable
    • street lamps
    • roads
  • free-rider problem
  • imagine a market for street lamps
    • if someone tried to sell a public good
    • no one would pay for it
    • because if one person pays for it
    • there is no way of forcing everyone else to pay for it
    • so no one would sell it
    • so there would be a MISSING MARKET
    • therefore the government intervene and provide the service for everyone

EXTERNALITIES

  • externalities: when a transaction has a cost or benefit to a third party
    • anyone apart from the buyer or the seller
  • merit goods: that have positive externalities in consumption e.g. gym membership
  • demerit goods: that have negative externalities in consumption e.g. fast food
  • BUYERS AND SELLERS (the free market) IGNORE THESE EXTERNALITIES
    • merit goods get UNDER CONSUMED
    • demerit goods get OVER CONSUMED
  • so therefore the government should intervene to fix this MARKET FAILURE

with reference to the data ...

assess whether UK government should subsidise gym memberships

  • the gym is a merit good
  • this is because it has positive externalities in consumption
  • for example, if i go to the gym - i am likely to be more healthy - so this can have a positive impact on THIRD PARTIES e.g. neighbours/ school/ work/ taxpayer
  • however externalities get ignored by the buyer and seller
  • so it might be better for the government to intervene and subsidise them to make them cheaper for everyone

privatisation - when the gov sell a business to a private individual

  • higher price
  • businesses aim to maximise profits
  • gov has too many objectives
  • businesses can re-invest and improve quality
  • workers may earn higher wages
  • workers can specialise

During the last six years, the government budget of Slovenia has raised almost €1bn in revenue from the privatisation of public sector assets. Most recently was the sale of 65% of the government shares in NLB Bank. The money raised from the sales was mostly transferred to the government budget and used for various purposes. These included the repayment of public sector debt and the long-term stability of the Slovenian pension system. (Source adapted from: https://www.total-slovenia-news.com/business/2564-privatisation-inslovenia-has-raised-almost-1bn-since-2012) (d)

With reference to the data above and your knowledge of economics, analyse the possible benefits of privatisation for the Slovenian Government.

  • Privatisation is when the government sell a business to a private individual or firm in return for money
  • Before privatising, the government may have struggled to manage the businesses alongside so many objectives
  • Also the government may have made a loss running the business
  • whereas the private individuals will be more motivated to make a profit from the businessses
  • these sales free up money for the government to focus on more important things e.g. schools/ hospitals etc.