• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Did the privatisation of British Rail lead to an efficient outcome?

Extracts from this document...


The privatisation of the railway network in the UK illustrates that competition and the free market lead to more efficient outcomes than the government ownership of ?natural monopolies?. In some markets, such as natural resources and railway services, it can be more efficient to have small amount of suppliers or even one supplier only. The term Natural Monopoly comes to be used to refer a market where long-run average costs are lowest when output is produced by one firm. In these sorts of industries, the total fixed cost is majority of the total cost. Therefore, in the cost diagram, the Average Cost shape is like the Average total cost shape: sloping down. ...read more.


To tackle this issue, some economies conclude these natural monopolies, the best owner of it is the government. When the supplier in these industries are state-owned, their goal will no longer be profit-maximisation. Instead, they will attempt to achieve allocative efficiency. (There is no productive efficiency in natural monopolies because there is no minimum average cost.) Hence, as shown in the diagram, Price=AR=MC, achieving allocative efficiency. As a result, quantity output be higher and price consumers pay will be lower, compared to the situation which owners of natural monopolies are private firms. For privatisation In the history of British Rail, during the age of nationalisation (1948-1995), the number of passengers was falling until privatisation in 1995. ...read more.


It allows them to use a large amount of profits to pay out in dividends to shareholders instead of reinvesting. Furthermore, once big investment banks bought share from the public, benefits from train operating companies would no longer benefit the public. For nationalisation There are several advantages for public ownership of railway services. When train operators want to invest a new programme, it has lower borrowing cost for government-financial investment, which will save a lot. Against nationalisation Moreover, maintaining and upgrading the railway service will cost the government billons of pound per year. If costumers complain of high fares to the government, they must spend more to subsidise the railway, which means a reduction in public spending in other sectors. In conclusion, when an economy attempt to deal with Natural Monopolies, it has to consider the consequence of either way. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our AS and A Level Markets & Managing the Economy section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related AS and A Level Markets & Managing the Economy essays

  1. Discuss whether the privatisation of British Rail has been successful. Evaluate whether the new ...

    It was believed that the privatisation would have particular benefits, including increased efficiency by reducing costs and cutting out waste. Also it was believed that there would be more concern fro customer need and management freedom to give a market led service.

  2. In economics we refer to these two acts as tax evasion and tax avoidance. ...

    This is prior to the introduction of the tax. Profits are CDEB. As a tax of one third is imposed, the MC and MR curves remain unchanged but net profits go down to CDFG. However there exists a situation where the burden of the tax is passed to the consumer.

  1. " Discuss the argument that privatisation and deregulation of electricity supply in a number ...

    That should one area have problem, neighbouring areas can easily send some extra power in that direction. But something knocked out power near the Canadian border and the system began to demand power for other areas. However, in this case, the neighboring areas did not have any spare electricity to

  2. what is economics

    producer surplus Other Factors Affecting Supply * Other factors, aside from price, that affects a producer's willingness to supply are: o Costs of production o Size and nature of the industry o Government policy and other factors Costs of Production * There are many things that can affect the costs

  1. What are the origins of the Pension Crisis and what can be done to ...

    will increase. The alterative is for government to increase National Insurance contribution and income tax, so that the increase in tax revenues can be used to pay higher state pensions to retires; it would cost nearly 3p extra in tax on every pound earned to raise the basic state pension from �80 to �105 a week (The Economist).

  2. Monopoly is less efficient than perfect competition---Do you agree?

    A farmer, therefore, does not have the power to raise prices and influence the market. A horizontal demand curve is therefore achieved: It is now time to turn our attention to the issue of monopolies. Examples of monopoly include rail transport (i.e.

  1. Markets - why they fail.

    * The higher the factor immobility, the more difficult it is for the market to clear after an economic shock. Preventing factor immobility market failure * Training and improved information flows 5. Inequality * Free market distributes resources to those with a higher income than a lower income.

  2. What Are The Effects Of Tescos Oligopolistic Market Structure, On Both Consumers And Producers?

    struggling to break even and are unable to invest in greener farming, despite increased consumer demand for more environmentally friendly produce. This coincided with the Office of Fair Trading allegations of dairy price fixing demonstrating just how supermarkets profit while producers and even the environment suffer.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work