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Unit 1.2
Types of Organization
On completing this chapter
you should be able to:
• Analyze and apply:
– The distinction between the private sector
and public sector
• Evaluate:
– The main features of the following types of
for-profit organizations: sole trader,
partnership and companies/corporations
On completing this chapter
you should be able to:
• Evaluate:
– The main features of the following types of
for-profit social enterprises: cooperatives,
microfinance providers, public-private
partnerships.
– The main features of the following types of
non-profit social enterprises: nongovernmental organizations, charities
Businesses
can be
classified
into different
economic
sectors.
• Private
sector
• Public
sector
Organizations
Private Sector
Public Sector
• Not owned by the
government
• Owned and controlled
by private individuals
and organizations
• Aim is to make profit
• Types: Sole Traders,
Partnerships and
Companies
(Corporations)
• Ownership and control
by the government
• Provide essential
goods and services
• Organizations wholly
owned by the govt. are
called Public
Corporations (i.e. US
Postal office)
Reasons why some organizations belong
in the public sector:
• To ensure everyone has access to basic services
such as education, health care, public parks and
public libraries.
• To avoid wasteful competition since the gov’t. is
able to achieve huge economies of scale (cost
savings from operating on a large magnitude) in
the provision of certain services, such as postal
services or national defense.
Reasons why some organizations belong
in the public sector:
• To protect citizens and businesses through
institutions such as the Police or the Courts that
govern the law and order system.
• To create employment (gov’ts tend to be a large
employer of teachers, doctors and nurses).
• To stabilize the economy (several private sector
banks were nationalized (bought by the gov’t)
during the global credit crisis to prevent further
financial turmoil.
Economies of Scale
• The cost advantage that arises with
increased output of a product.
• The greater the quantity of a good
produced, the lower the per-unit fixed cost
because these costs are shared over a
larger number of goods.
• Economies of scale may also reduce
variable costs per unit because of
operational efficiencies and synergies.
Economies of Scale
• http://www.investopedia.com/terms/e/econ
omiesofscale.asp
Many public corporations and assets
have been PRIVATIZED (sale of
public sector organizations to the
private sector)
BENEFITS:
 Efficiency gains
 Lower cost of production
 Increased choice
 Incentives to innovate
 Less financial burden
 Source of government revenue
Privatization - Investopedia

http://www.investopedia.com/video/play/pri
vatization/
DEFINITION OF 'SARBANES-OXLEY ACT OF
2002 - SOX'


An act passed by U.S. Congress in 2002 to protect
investors from the possibility of fraudulent accounting
activities by corporations. The Sarbanes-Oxley Act
(SOX) mandated strict reforms to improve financial
disclosures from corporations and prevent accounting
fraud. SOX was enacted in response to the accounting
scandals in the early 2000s. Scandals such as Enron,
Tyco, and WorldCom shook investor confidence in
financial statements and required an overhaul of
regulatory standards.
http://www.investopedia.com/terms/s/sarbanesoxleyact.a
sp
Question 1.2.1
Provision of basic
services
(a)
(b)
PROFIT-BASED
ORGANIZATIONS
3 types of businesses
• SOLE TRADER
• PARTNERSHIPS
• COMPANIES (CORPORATIONS)
SOLE TRADERS
• Also known as sole proprietor is an individual
who is the owner of his or her own business
• May work alone or they may employ other
people to help run the business
• Usually small family-run business
• Start-up capital from owner’s personal savings
and borrowing
• Business is UNINCORPORATED
• Unlimited liability
Sole Trader
Advantages
Disadvantages
• Few legal
formalities
• Owner gets all the
profits
• Your own boss
• Personalized
service
• Privacy
• Unlimited liability
• Limited sources of
finance
• High risks
• Workload and stress
• Lack of continuity
• Higher costs of
production
Unlimited Liability
• A type of business where owners share joint and
•
•
several responsibility for the entire amount of
debt and other liabilities amassed by the
business.
If the business is unable to meet any financial
obligations or settle any outstanding liabilities,
the owner's personal assets can be seized to
satisfy the debts.
http://www.investopedia.com/terms/u/unlimitedliability.asp
Question 1.2.2
Flowers by Cam
Question 1.2.2
Exquisite Flowers
Natalie Tran is a self-employed florist who operates
from her home in Kuala Lumpur, Malaysia. She
is married with three school-aged children. Her
husband’s work commitments mean that he only
comes home at the weekends. Natalie arranges
and delivers flowers to hospitals and schools in
central Kuala Lumpur. From time to time she also
receives large orders for weddings.
Analyze the costs and benefits to Natalie in operating as a sole trader
Analyze the costs and benefits to
Natalie in operating as a sole trader
The benefits to Natalie in operating as a sole trader include:
• It would have been relatively simple for Natalie to set up the
business since there are few legalities and procedures
involved
• Being her own boss allows Natalie to have more flexibility
in decision making, e.g. closing the store early so that she
can pick up her children from school or to attend parents’
evening at the children’s school
• The profits would be reaped only by Natalie as there are no
other owners
• Being a small business, she could keep all business
transactions private, i.e. only the tax authorities need to
know about her financial accounts
However, there are also costs for Natalie choosing to operate
as a sole trader:
• Sole proprietors have unlimited liability so this means that
Natalie could possibly lose her personal possession in
order to finance any debts that she might incur
• As a sole trader, Natalie would find it difficult to secure
various sources of finance, especially as she does not sell a
wide range of products
• There might also be costs related to her private
circumstance, e.g. child care or loss of time with the family
Examine whether sole traders, like florists,
benefit from a high degree of specialization
Advantages of specialization include:
• Being able to provide a specialized, focused and
personalized service to their customers means that sole
traders can thrive
• Sole traders become experts/specialists at their jobs and this
enhances their productivity
• There are lower costs involved compared to providing a
wide range of different goods and services.
Note: although sole traders specialize in the provision of a
good or service, they tend to need a variety of management
skills since they cannot afford to hire specialists (and hence
do not benefit from the division of labor).
Disadvantages of specialization include:
• There is greater risk in providing only a limited
range of products or services, i.e. sole traders are
not able to enjoy risk bearing economies of scale
• Specialization and repetitive tasks can become
boring and demotivate the worker. In this case,
Natalie may get ‘fed up’ with selling only flowers
• There is a limited customer base if firms specialize
too much in the provision of one or two products
only; this therefore reduces their profitability.
Sole Trader
• http://www.youtube.com/watch?v=L4RXETxb
W9M
Partnerships
• Profit-seeking business
that is owned by 2 or more
persons
• Maximum number of
partners allowed by law is
20 (vary per country)
• Financed by personal funds
• Unincorporated –
Unlimited Liability
• Legal contract such as
Deed of Partnership
Deed of Partnership or Partnership Deed
• The amount of finance contributed by each
partner
• The roles, obligations and responsibilities of each
partner
• How profits and losses will be shared among the
partners
• Conditions for introducing new partners
• Clauses for the withdrawal of a partner from the
business
• Procedures for ending the partnership
Partnerships
Advantages
Disadvantages
• More financial
strength
• Division of labor
and specialization
• Privacy – do not
have to publicize
their financial
records
• Unlimited liability
• Decision making may take
longer
• Disagreements and
conflicts likely to occur
• Lack of continuity if
partner dies or leave the
partnership
• Huge amount of mutual
trust
• Difficulty in raising capital
EXAM TIP!
Unlimited liability exists to prevent
sole traders and partners from
making careless decisions in
managing their businesses. It
makes private individuals
accountable for their actions and
decisions. However, the risk of loss
of private property can influence
some entrepreneurs, causing them
to make safe decisions instead of
taking risks.
Question 1.2.3
EXP: The Chinese
Experience
Question 1.2.3
EXP: The Chinese Experience
EXP is a small Chinese restaurant with
take-away service located in
Brockley, London (UK). It was
established in early 2006 by partners
Keith and Tonina Hoang. They had
been in business before, having set
up another successful take-away
franchise, The Wok Express, in
nearby towns.
EXP is run as an ordinary partnership
with Keith and Tonina each having
50% of the stake in the business.
EXP relies heavily on local customers
who have a choice from neighboring
competitors, such as pizza outlets
and Indian restaurants. They have a
workforce of 12 people, from chefs
to delivery staff.
Their popularity has grown with a budding
and loyal customer base. Keith and Tonina
even had to decide to discontinue with the
distribution of take-away menus in the
local area as business was already steady
and EXP was working at near capacity.
Keith and Tonina thought it best to
maintain the quality of their food and the
punctuality of their home deliveries in
order to maintain the image that they have
established in the local area. This does
not mean, of course, that they wouldn’t
like more customers if opportunities
allowed!
Define the terms franchise
and ordinary partnership
• A franchise is a form of business ownership (and
business growth strategy) whereby a person or
business buys the license to trade using another
firm’s name, logo, brands and trademarks. In this
case, Tonina and Keith are the franchisors who have
sold the rights to others to use their Wok Express
brand name of Chinese restaurants. In return, the
franchisee pays Tonina and Keith a royalty payment.
• An ordinary partnership exists when there are up to
twenty owners in a partnership, including any silent
partners. At least one of these partners must have
unlimited liability. In this case, Tonina and Keith each
own 50% of the business and both are held personally
liable for any debts that EXP might incur.
Outline the advantages and
disadvantages of running the
restaurant as a partnership
Advantages to Tonina and Keith running the
partnership include:
• Division of labor can yield cost-saving
benefits to EXP
• Since there are two owners, it is more
likely that the restaurant can raise
additional finance compared to if it had
been set up as a sole proprietorship
• The financial accounts of the business are
private to the owners, except for the tax
authorities
However, there are also disadvantages in
running the restaurant as a partnership,
including:
• The need to split profits 50:50
• Disputes between the partners could bring
the business to a halt
• It still has limited finance compared to
limited companies that could raise finance
through the sale of shares
• Ordinary partnerships still have unlimited
liability, meaning that Keith and Tonina
stand to lose their personal possessions if
the business falls into debt and/or
collapses.
EXP is a small business. Explain
the potential problems that this
might create, compared to
larger restaurants
Smaller restaurants might find it difficult to operate and
compete in comparison to larger restaurants for a few
reasons, including:
• Limited sources of finance reduce the scale and scope of the
firm’s operations. This will therefore limit EXP’s ability to
benefit from economies of scale.
• In addition, smaller businesses are statistically more prone
to severe cash flow problems.
• Since they lack human and financial resources, smaller
restaurants will not be able to benefit from division of
labour. This will therefore mean a greater workload for
Keith and Tonina.
• Smaller businesses also have a limited customer base and
therefore this limits their profitability (and hence their
ability to survive)
Examine the benefits to the
owners of EXP of remaining
small as a business
Small businesses can remain highly lucrative and beneficial to their owners.
Some reasons for this include:
• The owners remain highly flexible and adaptable to change, so if
business idea or plan does not work out then Keith and Tonina are quite
flexible in making the necessary changes, e.g. it is relatively easy to
transfer a small restaurant to a hair salon than for McDonalds to change
their operations.
• Small businesses such as EXP might operate in niche markets and can
become highly profitability yet these markets may be untouched by
larger businesses that are more concerned with mass market operations.
• There is more autonomy in decision making for the owners of small
businesses such as EXP. By contrast, managers working in large
multinational companies are held accountable to their shareholders.
• There are far less legality involved in the running of a small business.
Large businesses are held accountable to a much wider range of
stakeholders and their accounts may need to be made public.
• EXP is already operating at near capacity and stretching operations
beyond their means (overtrading) might harm the firm’s reputation (late
deliveries and lower quality food).
Companies or Corporations
 Business
owned by shareholders
(Shareholders – are individuals or
other businesses that have invested
their money to provide capital for a
company)
 Companies
are sometimes called:
- Joint Stock Companies
- Corporations (common term in N. America)
Companies or Corporations

Companies are INCORPORATED
businesses.
- there’s legal difference between the owners of
the company and the business itself
- separate entity, own legal rights and duties

Limited Liability
- maximum shareholders can lose is the value of
their investment in the business

Set up is complicated and expensive
Board of Directors
 Elected
by shareholders to run the
company on their behalf
 Held responsible for daily running of the
business
 Held accountable to their shareholders
 Each share equals one vote; the more
shares held by an investor the more
voting power they have
2 Types of Limited Companies
• Private Limited Company
• Public Limited Company
Limited Companies
Private
Public







Cannot share capital from
general public
Shares sold to private family
members and friends
Uses Limited or Ltd. (varies
by country)
Before trading, agreement
with the Board of Directors
Owners have greater
control of the business
Cheaper to set up than
Public
Limited finance than Public




Advertises and sells its
shares to general public
via the stock exchange
‘PLC’ after its name
Disadvantage: dilution
of control
Exposed to ‘takeover
bids’ from other
investors that seek to
purchase a majority
stake in the company
Examples: Private Limited Co.







Chanel – fashion and cosmetics (FRANCE)
Ernst & Young – Accounting firm (USA)
IKEA – home furnishing (SWEDEN)
LEGO – toys (DENMARK)
Mars Limited – confectionary (USA)
Tutor2u Limited – online education (UK)
Virgin Group – global conglomerate (UK)
Examples: Public Limited Co.








China Mobile – mobile phone services (China)
Coca-cola Company – soft drinks (USA)
HSBC – banking (UK and Hong Kong)
Michelin – tire manufacturer (France)
Microsoft – computer software (USA)
Nike, Inc. – sportswear & sports equip. (USA)
Porsche – automobiles (Germany)
Samsung – electronics (South Korea)
Documents needed before Private and Public
Limited Companies can trade
1. Memorandum of Association
- Name, main purpose, registered address,
original amount of share capital invested
- Brief document
2. Articles of Association
- Longer document, stipulates the internal
regulations and procedures of the company
- Section on how profits will be distributed
Document Flow
Memorandum of Association
Articles of Association
Application
Fee
Business as
a separate
legal entity
License
Start to
trade
Flotation or
Initial Public Offering (IPO)
• It occurs when a business first sells all or
part of its business to external investors
(shareholders)
• Company gets listed on a stock exchange
• Helps generate additional sources of finance
What are stocks?

http://www.investopedia.com/video/play/what
-are-stocks/
IPO

http://www.investopedia.com/terms/i/ipo.asp
London
Bombay
New York
Philippines
Madrid
The NASDAQ (acronym of National Association of Securities
Dealers Automated Quotation System) is an American stock
exchange. It is the largest electronic screen-based equity
securities trading market in the United States. With
approximately 3,200 companies, has more trading volume per
day than any other stock exchange in the world.
The Dow Jones Industrial Average (NYSE: DJI), also called
the DJIA, Dow 30, or informally the Dow Jones or The Dow)
is one of several stock market indices created by nineteenth
century Wall Street Journal editor and Dow Jones & Company
co-founder Charles Dow. Dow compiled the index as a way to
gauge the performance of the industrial component of
America's stock markets. It is the second oldest continuing U.S.
market index, after the Dow Jones Transportation Average,
which Dow also created.
******Stock exchange.doc
How the stock exchange work

https://www.youtube.com/watch?v=F3Qp
gXBtDeo
Reasons why investors buy
shares in a limited company

DIVIDENDS
- they are paid to shareholders
biannually
- represent a share of the profits that
are distributed to its owners
- paid on each share that a shareholder
owns; the more shares held the
higher the total payment
DIVIDEND
• http://www.investopedia.com/terms/d/dividen
d.asp
Reasons why investors buy
shares in a limited company

CAPITAL GROWTH
- shares outperform the return from
savings in a bank account
- shareholders sell their shares at a
higher price to make a financial gain
(capital growth or capital gain)
- note: prices can also fall without
warning due to the volatility of stock
markets
Reasons why investors buy
shares in a limited company

VOTING POWER
- Shareholders who hold enough shares
in a limited company can become a
major influence in the management
and operation of the company
- Example of these shareholders are the
senior directors of a company
Annual General Meeting (AGM)

Shareholders vote on resolutions (promises or
declarations) and the re-election (or sometimes
election) of the Board of Directors.

Shareholders ask questions to the chief
executive officer, directors and the chairperson
about various aspects of the company.

Shareholders approve the previous year’s
financial accounts.
Advantages of Companies
►Companies
can raise large amounts of
capital by selling shares
►Limited
liability
►Companies
benefit from continuity –
should anything happen to one owner,
the business does not need to cease
trading but can continue as a separate
entity from that owner
Advantages of Companies
► Directors
generally own a large amount of
shares – they have an incentive to perform
well to achieve capital growth (higher share
prices) and dividends
► Can
benefit from economies of scale due to
their larger scale business (ex. cheaper to
borrow money than sole or partnership)
► Hire
specialist directors and managers to
run the firm
Disadvantages of Companies
► Financial
information must be provided to all
shareholders
 time consuming and expensive
 Auditors have to be paid
 Annual reports must be published and
distributed
 Privacy no longer exists
► Communication
becomes larger
problems as the firm
Disadvantages of Companies
► More
legal requirements
 Memorandum and Articles of Association
 Lawyers must be hired
 Advertising and promotion of share
flotation
 Host the Annual General Meeting
► Dividends
are only paid out if the business
makes a profit
EXAM TIP!
Students often use the words
‘business’ and ‘company’
interchangeably. While this can be
true, it is important to remember
that companies are owned by
shareholders and so there can only
be 2 types of companies – private
limited and public limited
companies. ‘Business’ will cover
other forms of ownership, such as
sole trader and partnerships. In
summary then, all companies are
businesses but not all
businesses are companies.
Question 1.2.4
Mars Inc.
• What are the stages (sector) of
production?
• What are the factors of production?
• What are the functional
departments?
• Reasons why people set up their own
business.
• What are the concepts in BM?
FOR-PROFIT SOCIAL
ENTERPRISE
For-profit Social Enterprise
Social enterprise is a business with mainly
social objectives that reinvests most of its
profits into benefiting society rather than
maximizing returns to owners.
 Social enterprises strive to return a surplus
for social gain.
 Goals: to achieve social objectives and to
earn revenue in excess of costs.

Social Enterprise

https://www.youtube.com/watch?v=1ecKK
3S8DOE
Social Enterprise UK

https://www.youtube.com/watch?t=86&v=
VAuZWGnfW6s
3 types of for-profit
social enterprises
 Cooperatives
 Microfinance
Providers
 Public-Private
Partnerships (PPP)
COOPERATIVES

Cooperatives – a group of people acting
together to meet the common needs and
aspirations of its members, sharing
ownership and making decisions
democratically (all members have a vote).

Cooperatives share any profits earned
between their members.
COOPERATIVES

https://www.youtube.com/watch?v=ecSMt
Murws
3 main types of cooperatives
 Consumer
 Worker
cooperatives
cooperatives
 Producer
cooperatives
CONSUMER COOPERATIVES
Owned by the customers who buy the goods
and/or services for personal use.
 Example: grocery stores, credit unions,
child care, housing, health care cooperatives
 Members get access to goods and services
at lower price than those charged by
traditional commercial businesses.

NP Consumer Cooperative

NP Co-op: http://npco-op.com/aboutus/society-profile/
WORKER COOPERATIVES
A business that is owned and operated by
the workers themselves.
 Example: production and manufacturing,
cafes, tourism and communications
 By operating as an enterprise, members are
provided with work.

Green Worker Cooperatives

http://www.greenworker.coop
PRODUCER COOPERATIVES
Where groups of producers collaborate in
certain stage of production.
 Cooperatives that join and support each
other to process or market their products.
 Example: a farmer coop might unite to buy
equipment, fertilizers and seeds
collectively, by pooling their funds, thus
benefitting from bulk-purchase discounts.
 Many producers pool their resources to
obtain the cost efficiencies.

Citadelle Producer Cooperatives

http://www.citadelle-camp.coop/maplesyrup/The-Cooperative/Why-Citadelle.aspx
Examples of Cooperatives
Box 1.2.c
 Associated Press – a non-profit
multinational news agency headquartered in
the USA
 Ocean Spray – a farmer-based cooperative
of the popular cranberry and grapefruit juice
drinks
 Sunkist – US farmer-based producer
cooperative that makes the famous Sunkist
brand of fruit juices
COOPERATIVES
ADVANTAGES
 Incentives to work
 Decision-making
power
 Social benefits
 Public support
DISADVANTAGES
 Disincentive effects
 Limited sources of
finance
 Slower decisionmaking
 Limited promotional
opportunities
3 types of for-profit
social enterprises
 Cooperatives
 Microfinance
Providers
 Public-Private
Partnerships (PPP)
MICROFINANCE PROVIDERS
Microfinance is a type of financial service aimed
at entrepreneurs of small businesses, especially
females and those on low incomes.
 Microfinance providers enable the disadvantaged
members of society to gain access to essential
financial services to help eradicate poverty.
 Main aim is to help those who would previously
never have had access to finance to take the first
steps towards economic independence.

Microfinance

https://www.youtube.com/watch?v=_LK4X
MF2u8Y
Microfinance Example: BRAC
Formerly known as the Bangladesh
Advancement Committee; is the largest
microfinance provider in Bangladesh.
 Founded in 1972, its headquarters are in
Dhaka, Bangladesh.
 BRAC has more than 44,300 staff and has
helped around 135 million people in Asia,
Africa and the Caribbean.
 http://www.brac.net/#who_we_are

Microfinance Providers
ADVANTAGES
 Accessibility
 Job creation
 Social well being
DISADVANTAGES
 Immorality
 Limited finance
 Limited eligibility
3 types of for-profit
social enterprises
 Cooperatives
 Microfinance
Providers
 Public-Private
Partnerships (PPP)
Public-Private Partnerships (PPP)
PPP occur when the government works
together with the private sector to jointly
provide certain goods or services.
 In some countries the private sector runs the
public sector hospitals and schools, without
the services being actually privatized.
 Example: London’s olympic stadium, the
Sydney Harbor Tunnel, New York’s central
park, Hong Kong Disneyland (see Q 1.2.5)

PPP

http://www.investopedia.com/terms/p/publi
c-private-partnerships.asp
Question 1.2.5
Hong Kong Disneyland
Non-Profit and
Non-Governmental Organizations (NGOs)

Non-profit Organizations (NPOs)





Also known as not-for-profit organization
Run in a professional and business-like
manner but without profit being the major
objective
Any surplus (profit) is invested back into the
business for the benefits of its members
Aim to provide a service or to promote special
causes
Examples: public libraries, state schools,
museums, government hospitals & social
services, YMCA, Boy Scouts, Girl Scouts
Non-Profit and
Non-Governmental Organizations (NGOs)

Non-governmental organizations (NGOs)





Operates in the private sector
Not owned or controlled by the government
Not-for-profit organization
Also known as Private Voluntary Organization
(PVOs)
Examples: Friends of the Earth (environmental
protection), Amnesty International (human
rights), Unicef (children’s welfare) – activist
stance to influence change within the
government & society
2 Types of NGOs


Operational NGOs
- established from a given objective or purpose
- organizations involved in relief-based and
community projects
- i.e. Unicef, Oxfam
Advocacy NGOs
- more aggressive approach to promote or
defend a cause
- raise awareness through direct action
(lobbying, public relations, mass demonstration)
- i.e. Greenpeace and Amnesty International
Charities




Type of non-profit organization
Key function of collecting donations from
individuals & organizations in order to
support a cause that is beneficial to
society
Large organizations are run by a group of
managers & trustees, similar to a limited
company’s board of directors
Some managers or employees are paid for
their services while others operate on a
voluntary basis
Advantages of Charities




Provide financial support for the welfare of
society
Usually exempt from paying income tax or
corporation tax
Donors may get income tax credits
Can also register to be limited companies
so as to protect the interest of employees
and management who have limited
liability
Disadvantages of Charities


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Lack of profit motive may cause problems such
as staff demotivation
Trustees are not allowed to receive any financial
benefits
Must go through the process of being registered
Financial activities and records must be recorded
and reported to a governing body set up by the
government
Limited liability which may lead to inefficiencies
or degree of charity fraud
Survive only on one source of finance donations
Pressure Groups

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Non-profit organizations established by their
members to address a special interest of the
group
Aim to win public and media support from their
actions
Try to influence government legislation
They force businesses and government to take
account of the true costs of business activity
(such as pollution and environmental damage)
Examples: trade unions, animal rights activist
groups and environmental protection groups
That’s the end of Unit 1.2
for BMS SL
Relationship between organizations
in the private and public sectors
• PUBLIC SECTORS
- provide services to the general public rather
than selling products for a profit
- 3 options for the government in providing
these services:
(1) supply the service themselves
(2) allow private firms to provide these services
(3) form a public-private sector partnership
Public Goods
vs. Private Goods
 Enjoyed by general public
 Provided only by
with gov’t. intervention
 Non-rivalry: consumption
by one person does not
reduce the benefits
available to others
 Non-excludability: cannot
be excluded from the
benefits even if they do not
pay
 Non-rejectable: people
cannot simply reject since
they are provided for
everyone
private sector
 Purchase & use
diminishes the amount
that is available for
others
 Person is denied the
benefit if he/she cannot
pay
 Household can choose
to reject the
consumption simply by
not purchasing them
Merit Goods
 Products that yield higher social benefits of
consumption than private benefit to an
individual
 Should be provided in greater quantities
 Example: education, training, public libraries
and health care
 Private firms can provide these goods but not
everyone can afford to pay; government
support is needed to provide to everyone in
society
 All public goods are merit goods
Public and Private Enterprise




Takes place when governments create
partnerships with the private sector in the
provision of certain services
Also referred to as (PPP) – Public Private
Partnership
Private sector firms are hired for their expertise
for projects that are funded by both private
investors & the gov’t.
Examples: Sydney Harbor Tunnel, HKD
Disneyland, NY’s Central Park
That’s the end of Unit 1.2