Public and Private Sectors Flashcards
What is the public sector?
Government organisations that provide goods and services in the economy
How is the public sector mainly funded?
They are funded mainly by tax revenue
What is the private sector?
Provision of goods and services by businesses that are owned by individuals or groups of individuals
In many countries, what sector provides most of consumer goods?
The private sector
Name 3 aims of the public sector
- Minimise Costs
- Improve Quality of Services
- Allow For Social Costs and Benefits
Why does the public sector aim to minimise costs?
Government resources are scare so it’s important to minimise both waste and costs to reduce burden on the taxpayer
What are used to monitor service quality?
Performance indicators
Name 3 aims of the private sector
- Profit Satisfying
- Profit Maximisation
- Survival
- Growth
- Sales Maximisation
- Social Responsibility
Name the 2 roles of the government
To employ and produce
Explain how the government is an employer
Large number of people are employed in State Owned Enterprise
What does the government produce?
Merit Goods
Public Goods
What are merit goods?
Goods/services that government think people should have regardless of their ability to pay for it
What are the types of public goods?
- Non-excludable
2. Non-rival
What are public goods?
Goods provided by government for everyone
What is meant by if a good is non-excludable?
If provided to one consumer = all other consumers will also benefit
What is meant by if a good is non-rival?
As more and more people consume product = benefit to
others will not decrease
What are key industries?
Most important industries that are owned/run by the government
Give 2 examples of key industries
- Essential Products
2. Natural Monopoly
What does the government do to essential goods?
Government provides it for free or at subsidised prices
Why does the government create natural monopolies?
So private sector cannot produce at lower prices
Give an example of a natural monopoly
DEWA
Why might government regulation be needed?
To control monopolies and merger activity (if a market is dominated by a one to a few very large firms, consumers may be exploited)
How can a government influence in location of firms?
Via regional policy
What is regional policy used for?
Used to encourage or discourage business location in particular areas
Name 3 regional problems
Congestion
Unemployment
Income Inequality
How does the government combat regional congestion ?
By reducing development in congested areas (i.e. where there’s a heavy burden on public services e.g. schools)
How does the government combat regional unemployment?
By providing jobs in areas which are in decline (firms are offered incentives (e.g. grants) = encouraging firms to locate in poorer regions)
How does the government combat regional income inequality?
By encouraging firms to locate in poorer regions
How can a government promote competition? (name 3 ways)
- Encourage the growth of small firms
- Introduce anti-completive legislation
- Lower barriers to entry
Why would the government lower barriers to entry?
Bc more firms will join a market, thus making it more competitive
What is meant by anti-completive legislation?
Laws can be made to protect consumers from exploitation by firms
Why would the government encourage the growth of small firms?
If more small firms are encouraged to join markets there’ll be more competition
Name 3 measures a government uses to influence the location of firms
- Government investment in infrastructure
- Grants for investment
- Money for training
How can the government reduce competition?
By refusing planning permission for new developments
What is privatisation?
Privatisation is the transfer of public sector assets to the private sector
Name 4 things privatisation involves
- Sale of national industries
- Deregulation
- The sale of land and property
- Contracting out
What is deregulation?
Lifting legal restrictions that prevent competition in private sector
Name 4 motives for privatisation
- Deregulation
- Generate Income
- Reduce Political Interference
- Inefficient Nationalised Industries
How does privatisation generate income?
Sale of state assets raises revenue for the government
Name 3 effects of privatisation on consumers
- Some prices of services increase
- Some prices of services decrease
- Some new products and services have arrived due to more innovation
Name 2 effects of privatisation on firms
- Objectives change: newly privatised firms aim to make a profit
- Many firms increase investment
Why type of firms do merger and takeover activity often involve?
Newly privatised firms
Name 2 effects of privatisation on workers
- Some newly privatised businesses lay off workers
2. Some workers are forced to adopt more flexible working practices
Name 2 effects of privatisation on government
- Receive the privatisation sale proceeds
2. Burden of loss-making from nationalised industries is removed
Why might privatisation be expensive for the government?
Because lots of money is spent advertising the sale of state assets
Name 3 effects of privatisation on the economy
- More competition, economy will grow
- Job losses & higher benefit payments
- Public monopolies may become private monopolies (consumers may be exploited)
What will more competition lead to?
Costs will be lower, waste will be reduced and there’ll be more innovation
Why might privatisation result in job losses & higher benefit payments?
Due to the drive for efficiency
What is social welfare?
Money/allowance given to people who cannot work
What are demerit goods?
Goods that are harmful to society
What are subsides?
Money provided by government to business that benefits society (to reduce cost of production)
What is direct tax?
Tax taken straight from income and wealth
What is indirect tax?
Tax included in price of goods and services
How will indirect tax supply?
Will decrease it (supply curve shifts to the left)
