A Level Economics AQA Practice Exam

What is the definition of nationalisation in economic terms?

1. The sale of government-owned companies to private investors

2. The transfer of ownership of a firm from the private to public sector

3. The formation of new companies by the government

4. The introduction of stricter regulations on private companies

The correct answer is: The transfer of ownership of a firm from the private to public sector

Nationalisation in economic terms refers to the transfer of ownership of a firm from the private sector to the public sector. This process occurs when a government takes control of a formerly privately-owned enterprise, often with the aim of achieving broader social goals, such as ensuring access to essential services, safeguarding jobs, or stabilising industries that may be deemed too important to be left to market forces alone. The essence of nationalisation lies in the movement from private ownership—where individual or corporate shareholders hold equity stakes—to public ownership, where the government, representing the interests of the citizenry, assumes the management and operation of the firm. This can lead to changes in the company's objectives, focusing more on social welfare rather than profit maximisation. In contrast, the other options do not accurately describe nationalisation. Selling government-owned companies to private investors represents privatisation, which is the opposite of nationalisation. The formation of new companies by the government might refer to public enterprise creation but does not capture the essence of nationalising existing firms. Lastly, introducing stricter regulations on private companies pertains to regulatory measures, which do not involve ownership changes. Thus, the definition that highlights the shift of ownership from private to public distinctly encapsulates the concept of nationalisation.