Private Sector

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Definition of the Private Sector:

The private sector is the part of the economy that includes only households and privately owned businesses.

Detailed Explanation:

In most economies, you are dealing with an entity in the private sector when you purchase a shirt, car, meal at a restaurant, ticket to a play, and most other common goods and services. In these cases, a private company sells its goods or services to you for an agreed-upon price with the intent of earning a profit. The buyer and seller choose to trade. However, if you call the fire department, the police, or drive to work, you are probably dealing with the public sector. After all, you would not want to negotiate with the fire department if your house is on fire or pay a toll on every road because a private company owned the road. National defense is also provided by the public sector. Imagine what it would be like if we went to war and the government set a price for defense, and each citizen could choose whether or not they were willing to pay the price! However, it is important to note that most of the weaponry is manufactured by the private sector. How about if you attend school, turn on a light, go to the hospital, or purchase an airline ticket? In these cases you may be dealing with a company in the private sector or the public sector. Education is offered by public schools (public sector) and private schools (private sector). In many countries, electricity is provided by a government-owned utility. In others, like the United States, most electrical companies are privately owned but highly regulated. Likewise, some hospitals are privately owned, while others are owned by the public. Airlines may be privately or publicly owned as well.

The role of government determines the size of the public and private sectors in an economy. In market economies, the private sector dominates by providing most of the employment, and most of the goods and services. The public sector’s role is to serve the common good by providing a legal environment where the private sector can thrive with well-defined property rights and contract law. The government may also provide services in areas such as national defense, police, and firefighters where it is in the best interest of a community to provide a common good. These goods are not paid for by "selling" them. Instead, governments in capitalist economies depend on the private sector to furnish the tax revenue necessary to pay for government operations.

Some services that were provided by the government are now being furnished by the private sector. Recently, NASA hired Space X, a privately owned company, to deliver supplies to the space station. Private companies now manage a few of the prisons in the United States, a role that has traditionally been handled by the public sector. In other industries, such as health care, the public sector is taking a much more active role.

When a company is taken over by the government it is nationalized. Mexico nationalized its oil industry in 1938 when it took over operations from US and European companies and set up Pemex. Inefficiencies, lack of technology, and falling oil prices have contributed to the call for Pemex to privatize, or convert from a nationally owned company to a privately owned company. Instead, Mexico has opened its doors to joint ventures with private companies. Mexico is also permitting private companies to bid on its potential reserves. 

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