Chapter 4
Public Sector Decisions
What is the Private Sector? it
is the part of the economy that is owned by individuals and operated for their
personal benefit. All of these
individual choices will be guided by the economic principle that:
Individuals
will choose the alternative that produces the maximum private benefit or the
minimum private cost to them.
The private sector produces the majority
of all the income in our economy.
Private Goods are goods that are privately owned and
used to benefit only their owners.
What
are some goods that can be considered to be private goods?
Private Benefits private institutions are also
designed to produce private benefits.
For example, individuals from a private country club enjoy both the
costs and the benefits.
Public Sector is the part of the economy that is
owned by the whole society and operated for its benefit. All public goods are found in this
sector. No one can exclude anyone from
their use.
Private Sector Exchanges
Exchange
is the giving of
one thing in return for some other thing.
A voluntary exchange only when both parties benefit from the
exchange. Usually these exchanges are
made in a market situation.
What
are some things that we can exchange for goods in our society?
What
are some market settings?
Efficiency is using a given amount of
resources and to get the maximum amount of benefit. Producing the right things, at the right time, using the right
combinations of resources.
In a market
system firms must be efficient in order to stay in business.
Competition is the rivalry between two or more
parties to gain benefits from a third party.
Competition forces producers to aim for efficiency. Competition not only encourages producers to
be more efficient; it also forces weaker, less efficient companies out of the
industry. Competition among producers
in the marketplace works to the consumers advantage.
Markets refers to the exchange activities
between buyers and sellers of goods and services.
1. Markets Give you price information
2. Markets provide many choices
1. Profit
Drives Producers
the success of producers depends on their ability to satisfy the wants and
needs of consumers more efficiently than others do. Therefore, producers in the market try to maximize profits.
2. Entrepreneurs
Take Risks Individuals
who organize a company to produce a product for profit are called entrepreneurs.
In general, producers take larger risks in making decisions than do
consumers. Entrepreneurs bring together
the inputs or production (raw materials, labor, and capital) to produce a
product that will satisfy consumer wants and needs.
3. Private
Enterprise System
is a system in which individuals take the risk of producing goods or services
to make a profit. In a private
enterprise system, an entrepreneur is willing to take the risk to try something
that has not been tried before.
The
private sector functions primarily through markets. Markets give the power to both producer and consumer through
competition. The market encourages
producers to take risks and to produce new and better products. Markets help producers and consumers make
more efficient decisions that maximize their own well-being.
Private
Sector Problems
§
Collusion is the situation of firms acting
together rather than separately. The objective of having collusion is to give
the group of firms the power of a monopoly. All of the firms can act as one and
earn greater profits than if they acted separately.
§
Cartel a formal organization of firms in the
same industry acting together to make decision. In the United States, cartels are illegal. However, this does not mean that firms do
not practice collusion.
In
this situation, if no producer will sell below the agreed-upon price, consumers
will have to pay a higher price for the goods.
The choices available to consumers are also reduced.
Can consumers reduce competition? How?
Negative Externalities -
your satisfaction or well-being will be
reduced if a certain action is taken.
Positive Externalities the benefits that are passed on as a
by-product of some action.