EconomicsNotes

  The market system is one in which attempts to answer the basic economic problem of resource allocation in a world of scarcity by employing the price mechanism. In such a system, market price is used to allocate resources, to signal to producers and consumers what to produce and what is available, and to provide an incentive via profits and consumer surplus to sell or buy.   This means that the market will, via an ‘invisible hand’ be expected to clear the market, by selling all available goods at the prevailing price that people are willing to pay. This is contrasted with government schemes which seek to take advantage of concentrated information to make choices according to a national plan which is then imposed on producers and consumers. It has been recognised for centuries that the market system can be ‘allocatively efficient’ though it rarely is fully so.  Allocative efficiency is a state in which an economy produces goods so that the marginal cost of the producer ...

  Nationalisation means the process whereby a business is taken into government ownership and is run by a public authority. Between 1945 and 1985, many British companies were nationalised ones. Governments, starting consistently in the 1980s, sold these companies to the private sector with the aim of changing companies which required public funding into ones that generated tax revenue. In addition, attempts were made to create or emulate markets in the areas where the firms operated, often by breaking the firms up into a number of new ones, so as to introduce choice for customers, competition, and dynamic efficiency. A trade-off was accepted in which formerly public companies made private profits, often accompanied by subsidy, for shareholders, but where shareholders invested in infrastructure and capital. This was accompanied by government regulation of price and services. It was the case, however, that many industries were originally natural monopolies. This is a situation in w...