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Ownership of property :
Private ownership
Government  ownership
Private + Public (govt.) ownership
Motive or objective:
Profit maximization
Collective welfare social
Private Sector   Profit maximsation
Public Sector    Collective Welfare
Allocative mechanism:
Price mechanism ( demand and supply)
Rationing mechanism
(central planning & quota’s )
Private Sector Price mechanism
Public sector  Rationing  mechanism            
Freedom of choice:
(In Production & Consumption)
Freedom  of choice
 No freedom  of choice
Private Sector     yes
Public sector       no
Private Sector     yes
Public sector       no
Role of government:
(In allocation of resources i.e.)
Minimum role of govt. in economic affairs. Only limited to maintain  law & order in the country.
All economic & non-economic affairs are in the hands of govt.
Govt. limit its role to the provision of necessary goods & services & regulate  private sector for social welfare..
Variety of goods &  services:
Private Sector     yes
Public sector       no
Quality  of goods &  services:
High quality
Poor quality usually
Private sector        High quality
Public sector   Poor quality usually
Response to changes in demand: Consumer sovereignty
Quick response to changes in consumers preferences.
slow  or no response.
Private Sector      Quick response
Public sector         Slow response
Producing most desirables goods (allocative efficiency) with least cost methods(productive efficiency)
*efficient allocation of resources usually because of existence of profit motive
*Sometime inefficient .e.g. private Monopolies.
Inefficient allocation of resources because of absence of profit motive.
Inefficiency of private sector is minimized by govt. policies.
Shortages & surpluses:
(Shortage = Demand > Supply)
(Surplus = > Supply > Demand)
Price mechanism clears markets and there are no shortages  & surpluses.
Central planning is unable to guess exact quantities demanded  , Shortages & surpluses are present.
Private sector    No shortages & surpluses
Public sector      Shortages & surpluses are present.
Merit goods:
e.g. Healthcare, education etc
Underproduction & under consumption.
Socially optimum
*private sector    underprovision
*Missing markets of merit goods will be supplied by govt. provision.
Public goods:
.e.g. street light national defense
non-marketable and therefore missing
provides public goods from central finance.
Public sector provides public goods.
Demerit goods:
e.g. alcohol, drugs, cigarettes etc.
overproduction & over consumption.
Less or no demerit goods
govt. discourage consumption & production will be  by high taxation and legal  actions.
Distribution of income  & Wealth:
unequal distribution
Even distribution
Progressive taxation and welfare payments  to poor will reduce the disparity between rich & poor.
Useless duplication of goods & services:
may be  in private sector but not in public sector.
Negative externalities:
(e.g. Noise , pollution , Congestion, etc)
More than socially optimum level
Socially optimum
Govt. will regulate the emissions  of negative externalities by taxes and  legal actions
Necessities  & luxury goods:
Less necessities  & more luxury goods
more necessities  & less luxury goods
Public sector  will provide necessities to even those who can’t pay.
Private Monopolies:
develop and exploit consumers by setting high prices
No private monopolies are there in command economy.
Govt. regulates private monopolies and protects consumer’s from exploitation.
Existence in real world:
No pure market economy
No pure command economy
All economies  are mixed but proportion of private & public sector vary from country to country.
Other terms:
Free economy, Capitalism, free market economy, laissez faire.
Communism, socialism, planned economy, centrally planned economy.

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