The mixed economy. 2.5

• A mixed economy is an economy that relies both in the public sector and in the private sector to provide goods and services.
• The private sector refers to suppliers of goods and services that are owned by individuals.
• The public sector refers to suppliers of goods and services that are owned or controlled by the government.
• The aims of the businesses in the private sector are determined by the owners.
• Profit maximisation: firms aiming to maximise profit is one of the main assumptions of the economic theory. It means that firms will try to make as much profit as possible. This is achieved by continuously looking for ways to increase revenue and decrease costs.
• profit = total revenue - total costs
• A dividend is a percentage of the profit that each shareholder gets.
• Shareholders want their dividends to be as high as possible. Therefore they want the company to maximise its profit.
• Profit satisficing: some businesses make enough profit to keep the owners satisfied but not as much as profit maximisation.
• Survival: this is the usual aim for firms when they start. Making sure they can at least cover their costs so that they do not have to shut down.
• Growth: many firms are focused on growing the business. Sometimes this may mean making less profit at the beginning. This is because to grow, firms may need to spend more (increase costs).
• Social responsibility: more and more firms aim to also help society when producing.
• In the private sector the types of ownership are:

  1. Sole traders.
  2. Partnerships.
  3. Companies.
• Sole traders: the business is owned by 1 person.
• Partnerships: the business is owned by 2 or more people working together.
• Companies: the shareholders own the business. Then shareholders elect a board of directors to run the business on their behalf.
• In the public sector the types of ownership are:

  1. Central government departments.
  2. Public corporations or state-owned enterprises (SOEs).
  3. Local authorities services.
  4. Other public sector organisations.
• Central government departments: controlled by a government minister.
• Public corporations or state-owned enterprises (SOEs): the government selects the people who run the organisation and also makes the main decisions. They also get money from taxes. At the same time they operate like private businesses.
• Local authorities services: controlled by local councils.
• Other public sector organisations: led by experts that are selected by the government (or the King).
• The public sector does not aim to make a profit.
• The public sector will take into account the needs of several stakeholders.
• Stakeholders are anyone in society affected by an organisation.
• Equity is when people have equal opportunities to access different services.
• The public sector solving market failures:

  • Increase positive externalities and decrease negative externalities.
  • Increase competition in the market and protect consumers.
  • Provide missing markets for public goods.
  • Improve information for consumers and producers.
  • Improve labour markets for workers and firms.
• The market economy and the mixed economy:

  A) Producer

  B) Consumer

  C) Producer

  D) Consumer

  E) Government

  F) Private sector

  G) Private sector

  H) Public sector

  I) Market demand

  J) Market demand

  K) Government

  L) Consumers with the best ability to pay

  M) Consumers with the best ability to pay

  N) Government

  
• Advantages and disadvantages of market economies and mixed economies:

  A) Wide variety of goods/ services

  B) Competition encourages development of new products

  C) Government can intervene to correct market failures

  D) Serious market failure

  E) Worthwhile but unprofitable goods not provided

  F) Harmful goods may be available to buy readily

  G) Taxes can be high

  H) Public sector provision may be inefficient

  
• Privatisation is when resources from the public sector are transferred to the private sector.
• Forms of privatisation:

  • Sale of nationalised industries to the private sector.
  • Contracting out.
  • Sale of land and property.
• Nationalised industries are industries that are owned and controlled by the government. Many are nationalised because they are natural monopolies.
• A natural monopoly is when it is more efficient to have only one firm supplying that good or service than having several firms supplying it.
• Nationalised industries tend to stay in the public sector when they are natural monopolies and competition is difficult to implement.
• Contracting out is when private firms provide a public service.
• Reasons for privatisation:

  • To generate government revenue.
  • To increase efficiency.
  • To reduce political interference.
• Advantages of privatisation:

  1. Consumers can benefit.
  2. Firms can benefit.
  3. Governments can benefit.
• Consumers will benefit from privatisation because private firms have an incentive to make profit as they compete with one another. They may improve their products and/ or reduce their prices.
• Often there are mergers and takeovers after privatisation.
• Mergers: a business deal where two existing, independent companies combine to form a new, singular legal entity.
• Takeover: one business acquiring control of another business.