private+public sector

• what is the definition of private sector ?

  The private sector is that sector of the economy that is owned and controlled by individuals or groups of individuals rather than by the government

  • Funded by a variety of sources of finance
  • Main aim is to survive in the first instance and make a profit. Generally ‘for-profit’.
  • Examples
  • Sole traders / Partnerships
  • Private limited companies
  • Public limited companies
  • Social enterprise / charities
• What drives down prices in the private sector?

  Profit incentive
• How does the profit incentive benefit consumers?

  It gives consumers more choice
• What does the private sector encourage among businesses?

  Competition
• Who typically brings about new and innovative products?

  Private sector organisations
• What is one economic benefit of the private sector regarding employment?

  It creates jobs and lowers unemployment
• How does the private sector improve living standards?

  By providing income through jobs
• What services do councils often outsource to the private sector?

  Refuse collection and street cleaning
• What has happened to some public sector organisations?

  They have been successfully privatised
• How are schools and the NHS being managed now?

  More like private businesses for efficiency
• What does the private sector provide for government spending?

  Tax revenue
• How does the private sector encourage foreign investment?

  By creating a favorable business environment
• What types of organisations are included in the private sector?

  Social enterprises and charities
• What is a key objective of social enterprises and charities in the private sector?

  To improve local communities
• what are the aims of the private sector?

  • Survival
  • To continue to exist as a business
  • This may be the primary objective of a start-up business or one experiencing difficult trading conditions
  • Profit
  • To achieve sales revenue that is higher than total costs
  • Profit = SR – TC
  • Growth
  • To increase in size either by value of sales or volume of sales (or both!)
  • This may be organically i.e. opening new stores, launching new products or externally i.e. by joining with other businesses or taking them over

   
• what is the definition of the public sector ?

  • The public sector is that sector of the economy that is owned and controlled by the government rather than individuals or groups of individuals
  • Funded by tax payers money 
  • Main aim is to provide a good quality service that is accessible to everyone
  • Examples:
  • State education
  • National Health Service
  • Other services such as police, army, navy and air force, transportation, social protection
• why is the public sector important?

  some good & services arent provided by the private sector who are looking to make profits.

  Goods which will only be provided by the government are called public goods.

  Goods where consumption by one person does not reduce the amount available to others and, once provided, all individuals will benefit.  

  Public goods (and services) have features:

  • non-excludability - It is impossible to exclude others from benefiting from their use.
  • non-rivalry - Consumption of the good by one individual does not reduce the amount available for others.
• what is the definition of a merit good ?

  MERIT GOOD: A merit good is one that is deemed to be beneficial for society but is under-provided by the market.

   

  Provide services to society:

  Make essential services available to all for the good of society as a whole

  Education and health care

  Services that would not be provided by the private sector 

  Policing and defence

  Services that can not be easily charged for or sold profitably but benefit everyone

  Street lights, roads
• give examples of merit good ?

  Health, Education, Libraries, Museums, Roads or other appropriate

  answer.
• explain why street lighting is a public good ?

  Non-rivalry (or other form of words) (1) — the consumption of the good by one individual does not reduce the amount available for

  others e.g. social services (1)

  Non-excludability (or other form of words) (1)

  • it is impossible to exclude others from benefiting from their use i.e. people who use the street will benefit from the street lighting provided (1 )
• what is the importance of the public sector

  Goods and services needed in our everyday lives (public goods) would not be provided by the private sector who are looking to make profits. For example: street lighting, defense (army, navy, air force) and the police. We all benefit from them without paying for them
• what is the definition of business aims

  are the long-term intentions that provide a focus for setting objectives. They are usually expressed qualitatively, sometimes in the form of a mission statement
• advantages of private limited company - LTD (1)

  • Benefit of limited liability – if the business fall into debt then the owner is not held responsible and their personal possessions are safe
  • Can attract extra shareholders to invest because of limited liability.
  • Control cannot be lost to outsiders – shares are only sold by word-of-mouth so the owners have to invite people to buy the company shares
• advantages of private limited company - LTD (2)

  • Continuity – the business does not end if a partner dies
  • Can be tax advantages if owners are paying the higher rate of income tax.
  • Increased capital – the ability to sell shares can generate the capital needed to expand the business.
• disadvantages of an LTD - private limited company

  • Legal procedure in setting up takes time and costs money.
  • Having to disclose the accounts – financial information filed with the Registrar can be looked at by public/competitors.
  • Profits have to be shared with the other shareholders
  • Slower decision-making – especially if all shareholders have to be consulted
• advantages of public limited companies (PLC's)

  • All shareholders maintain limited liability.
  • More market power maybe enjoyed due to larger size.
  • Huge amounts of money can be raised from the sale of shares to the public on the Stock Exchange – this can be used to expand the business.
  • Economies of scale may be enjoyed as the company grows.
  • May gain greater presence /dominance in the market.
  • Often easier to raise finance – financial institutions, such as banks, are more willing to lend to plcs.
• disadvantages of public limited companies (PLC'S) pt1

  • It can be expensive – setting up costs can run into millions for some businesses.
  • Outside interests could take control as shares are on sale to the public.
  • Greater divorce of ownership and control than in a private limited company. The company’s board may lose control.
  • Accounts can now be inspected by the public or competitors who could use them to their advantage.
• disadvantages of public limited companies (PLC'S) pt2

  • Have to publish more information than private limited companies.
  • Greater size may lead to slower decision making.
  • Can be time consuming to gain listing.
  • If they grow too big they may become inflexible e.g. they may find change difficult to cope with.
• reasons for becoming a PLC

  • Large amounts of money can be raised for the business from the sale of shares to the public
  • May gain economies of scale
  • Easier to raise loan finance
  • Helps growth – might give a business a bigger market share
  • May motivate employees/managers
  • Brand recognition
  • More capital for investing in new products
• reasons against becoming a plc and staying as an LTD

  • Setting up costs for the business would be expensive
  • There would be an even greater divorce of ownership for the business between ownership and control
  • A business may lose control and be involved in a takeover
  • The business accounts can be inspected by the public – used by competitors
  • A loss of personal touch between the business and its customers
  • The business may become inflexible because of it size