1. U.S. Private and Public Sectors

2. U.S. Private and Public Sectors
Public Sector defined – Areas of economic activity in which economic decisions are made primarily by the government.
Private Sector defined – The area of economic activity in which economic decisions are made primarily by individual household and businesses.

3. Households
When we looked at the simplified circular flow model we began to see that households and firms share a special relationship in economics.
In this unit we will see that along with the rest of the world they make up the private sector.

4. Households
Household are a key player in the private sector as they determine what will be bought, how much will be saved and generally who will make certain goods.
Through the years we have seen a change in the buying patterns of households as more women (1950 – 15% of workforce, today over 50%) have entered the workforce. This entrance of women into the workforce has prompted more products for the home being produced from fast and easy meals to childcare.
The fact that there are 110 million households in this county and each one is competing for goods and services that will maximize their satisfaction is a powerful force.

5. Firms
Because firms develop economies of scale due to their greater size and efficiency they can produce goods and services cheaper and faster than households. This is the reason why we buy our food and clothes instead of making them ourselves as previous generations did.
Firms are organizations created by an entrepreneur with the express intention of generating a profit. In today’s market firms must be ever vigilant to produce what the public demands and be attuned to what changes might occur in their future buying patterns.

6. The Rest of the World
Due to the fact that international trade has impacted heavily on the US, we now have to be attuned to what is happening in the rest of the world, as it will affect our markets for goods and services.
For example, an earthquake in Japan that destroys the Toyota plant will result in higher prices for those types of cars. Just look at what the price of crude oil overseas has done to the prices at the pump. We will explore this more fully when we get to the Global Economy.

7. The Rest of the World
Another factor to consider when dealing with the rest of the world is that the US is no longer just importing and exporting goods, but also jobs.
When we send American positions overseas it is termed outsourcing but when we import foreign workers to replace American workers it is termed insourcing.

8. Regulating the Private Sector
The United States Government is charged with the care of the public sector and to this end they seek to do four things, these are
A. Monitor
B. Guide
C. Protect
D. Correct

9. Public Goods, Private Goods, Quasi-Public Goods and Open-Access Goods
Sometimes the private sector cannot profitably supply some goods and services and it therefore falls to the government to do so. Examples of public goods are national defense, roads, schools, parks and highways.
The most efficient way to fund these types of goods is through taxes because if we left them to voluntary funding we would be faced with the free rider problem. Conversely, if we left the generation of these goods to private enterprises, they would be expensive and not available to all.

10. When looking at private and public goods we have the concepts of rival and exclusive goods. When we talk about rival in consumption we are saying that as goods are consumed it leaves less for others to consume. If we have a senior breakfast and order just enough doughnuts for everyone, and someone takes two, then there is one person who will be shorted, you have a rival in consumption.
On the other hand the concept of exclusivity must also be addressed. If you buy a pizza, it is a private good, and you have the right to exclude others from eating it. This is more difficult for public goods where you cannot exclude a non-payer from using the good, such as a library.

11. Two other types of goods still need to be examined
Two other types of goods still need to be examined. The first is Quasi-public goods, this occurs when a good is non-rival and exclusive. An example of this is cable TV. If the number of people watching HBO double it does not detract from the quality of the signal so it is non-rival.
At the same time HBO excludes people by making them pay for the service thereby establishing exclusivity. Other example are Sirius Radio and cell phone service providers.

12. The final good we will look at is open-access goods
The final good we will look at is open-access goods. These goods are rival but non-exclusive. Examples of these would be fishing banks. Every fish caught leaves less fish for others making them rival goods, while at the same time it is almost impossible to block access to these fishing grounds so they are non-exclusive.