🏥 Public sector
Examples in the UK: the National Health Service (NHS), state schools, the police and the fire service. The government owns them and pays for them mainly through taxes.
The Mixed Economy » The Mixed Economy: Public and Private Sectors
What you'll learn this session
Study time: 30 minutes
Edexcel spec: 1.1.5 (a)-(d)
- What a mixed economy is
- What the public sector and the private sector are
- How they differ in ownership, control and aims
- How a mixed economy decides what, how and for whom to produce
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Unlock This CourseOne economy, two sectors
Every country has to decide how to use its scarce resources. Some goods and services are provided by businesses that want to make a profit. Others are provided by the government. Most countries today use a mixture of both.
This topic is examined on Paper 1 (Microeconomics and Business Economics).
Key terms:
- Mixed economy: an economy where resources are allocated partly by the market (the private sector) and partly by the government (the public sector).
- Private sector: the part of the economy made up of businesses and organisations owned by individuals or groups of individuals, not by the government.
- Public sector: the part of the economy owned, controlled and run by the government (central or local).
Public sector and private sector
A state hospital is in the public sector, run by the government to provide a service, not to make a profit
🛍 Private sector
Examples: a supermarket chain, a local hairdresser, a mobile phone company, a family-run cafe. Individuals or shareholders own them and they sell to customers.
In a mixed economy, both sectors exist side by side. For example, a patient may use a free NHS hospital but also buy medicine from a private pharmacy. A child may go to a state school but eat lunch bought from a private shop.
Ownership, control and aims
A family-run shop is in the private sector: owned privately and usually aiming to make a profit
The two sectors differ in three main ways.
- Ownership: public sector organisations are owned by the government on behalf of the people. Private sector firms are owned by individuals, such as a sole trader, or by shareholders in a company.
- Control: in the public sector, the government (or people it appoints) makes the big decisions. In the private sector, the owners or the managers they choose make the decisions.
- Aims: private sector firms mainly aim to make a profit, and also to survive and grow. Public sector organisations mainly aim to provide a service to the public, such as healthcare or education, often to everyone and often free or cheap, and to treat people fairly. Some may only try to cover their costs.
| Feature | Public sector | Private sector |
|---|---|---|
| Owned by | The government | Individuals or shareholders |
| Controlled by | The government or its appointed managers | Owners or their managers |
| Main aim | Provide a service for the public | Profit (and survival and growth) |
| Paid for mainly by | Taxes | Sales to customers |
Solving the three big questions
Every economy must answer three questions because of scarcity: what to produce, how to produce it and for whom to produce it. In a mixed economy, both sectors help to answer them.
❓ What to produce
Private firms produce what they think people will buy and what will make a profit. The government decides which services to provide itself, such as schools, roads and healthcare, and spends tax money on them.
🏭 How to produce
Private firms choose the cheapest method that works, for example more machines or more workers, to keep costs low and profit high. The government chooses how to run its services, such as how many nurses and teachers to employ, within its budget.
👥 For whom to produce
In the private sector, goods go to those who are willing and able to pay the price. In the public sector, services are often shared out by need, for example to people who are ill or of school age, and are free or cheap to use.
So the market and the government share the decisions. Prices and profit guide the private sector. Government choices guide the public sector.
Worked example
Question: Explain one difference between the public sector and the private sector. [2 marks]
Answer: The public sector is owned by the government (1), whereas the private sector is owned by individuals or shareholders (1). You could also use aims: a private firm mainly aims for profit, whereas a public sector body mainly aims to provide a service to the public.
Common mistakes
1. Saying the public sector means "the public" own shares. It means the government owns and runs it. 2. Saying public sector organisations never charge anyone. Some do charge a fee, for example for a passport. 3. Writing that private firms only want profit. Survival and growth are also aims. 4. Forgetting that a mixed economy needs both sectors. A country with only one is not mixed.
Exam-style question
Pelmoor is a country with a mixed economy. The government runs all hospitals and state schools. Most shops, farms and factories are owned by private businesses.
(a) Define the term 'mixed economy'. [2 marks]
(b) Identify one example of a public sector organisation and one example of a private sector business in Pelmoor. [2 marks]
(c) Explain how the problem of 'for whom to produce' is solved differently in the public and private sectors of Pelmoor. [4 marks]
Model answer
(a) A mixed economy is one where resources are allocated by both the private sector and the public sector (1), so the market and the government both decide what is produced (1).
(b) Public sector: a hospital or state school (1). Private sector: a shop, farm or factory (1).
(c) In the private sector, goods and services go to people who are willing and able to pay the price (1), so people with more income can buy more (1). In the public sector, services such as hospital care are often provided free or cheaply (1) and shared out by need, for example to people who are ill, not by ability to pay (1).
Exam tip
In part (c), the word 'differently' tells you to write about both sectors and compare them. Use a linking word such as 'whereas'.