Student's Sample answers
2.0 The Allocation of Resources
Public sectors Vs Private sectors
Discuss whether private sector firms are likely to charge lower prices than public sector firms [8] by Quah Xuanyu
Private firms likely charge lower prices than public firms as they have more competition in the market. Lowering the prices of their goods allow them to have increase in demand for their products. This increases their market share which results in them increasing their revenue and profits.
However, public sector firms are likely to be supported by the government. This allows their products to be subsidised which can lower their costs of production, which reduces their prices, causing the public sector firms too charge cheaper than private firms.
Moreover monopoly may occur in the private sector. This makes the private sector firms to be able to charge higher prices to increase their profits.
In conclusion whether or not the private sector are likely to charge lower prices than the public sector firms depend on the nature of the goods and services, whether it is price elastic or inelastic. For inelastic goods or services, private sector firms are likely to have higher prices to maximise profits and revenue as demand will not change as much thus being more expensive than public sector firms. But for elastic goods, private sector firms tend to lower prices to increase market share, as a result it may charge lower than public sector firms.