Although controversial, what are the potential advantages of privatising public services? Firstly, privatising means outsourcing of public services to the private sector. For example, this might include Competitive tendering – where private companies are allowed to bid for the right to provide meals for hospitals. NHS outsourcing treatment to private hospitals. To deal with waiting …
Distributive efficiency occurs when goods and services are consumed by those who need them most. Distributive efficiency is concerned with an equitable distribution of resources because of the law of diminishing marginal returns. The Law of diminishing marginal returns states that as consumption of a good increase we tend to get diminishing marginal utility. For …
Deregulation involves removing government legislation and laws in a particular market. Deregulation often refers to removing barriers to competition. For example, in the UK, many industries used to be a state monopoly – BT, British Gas, British Rail, local bus services, Royal Mail. However, deregulation allowed new firms to enter these markets and reduce the …
Definition of Predatory Pricing Predatory pricing occurs when a firm sells a good or service at a price below cost (or very cheaply) with the intention of forcing rival firms out of business. Predatory pricing could be a method to deal with new firms who enter an industry. If a monopoly is enjoying supernormal profits, …
X Inefficiency occurs when a firm lacks the incentive to control costs. This causes the average cost of production to be higher than necessary. When there is this lack of incentives, the firm will not be technically efficient. In theory, the firm could have an average cost curve at “Potential AC” but due to organisational slack, …
Limit Pricing is a pricing strategy a monopolist may use to discourage entry. If a monopolist set its profit maximising price (where MR=MC) the level of supernormal profit would be so high it attracts new firms into the market. Limit pricing involves reducing the price sufficiently to deter entry. It leads to less profit than …
This is an example of applied economics. Two different personal cases of outsourcing work. Outsourcing web-development I had a job for website development – make a menu of my other website on biographies more mobile friendly. I could have tried to do it myself, but it would have taken several hours. I’m better off specialising …