Three questions. Every country. No exceptions.: Scarcity forces choices, and they all come down to the same three.
The countries differ only in who answers them.
The three
- What to produce — hospitals or motorways?
- How to produce it — twenty workers, or one machine?
- For whom — who actually gets it?
One field, three questions: What — wheat, barley, or a solar farm?
How — hand tools, or a combine harvester?
For whom — sold to the highest bidder, or handed out by the state?
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Who decides what gets made?: Two answers: prices decide, or government decides.
Every country uses both. Most of this course is an argument about the mix.
One concert, one price, three jobs: Tickets go on sale at €40. They sell out in ten minutes.
An hour later people are paying €200 online to buy one off someone else.
That €200 is doing three jobs at once.
1
Signalling — the price carries news
€200 says one thing: far more people want in than there are seats.
Nobody had to announce that. The price is the announcement.
2
Incentive — the price makes someone act
The organisers see fans paying €200 and add three more nights.
More gets made because there is money in it.
3
Rationing — the price decides who gets in
The venue holds 2,000 people tonight and not one more.
The price settles which 2,000 — the ones willing to pay most.
Signal → Incentive → Ration
Prices decide
- Who decides: nobody. The price moves on its own.
- How fast: minutes.
- Where you see it: concert tickets, trainers, energy drinks.
- Who gets it: whoever pays the most.
Government decides
- Who decides: a person — and you can argue with them.
- How fast: months. It takes a law or a budget.
- Where you see it: school places, vaccines, rent caps.
- Who gets it: whoever the rule picks.
The part that does not feel fair: Look again at what rationing does: the person who pays most gets it.
For a concert that is fine. Miss out and you miss a gig.
Now make it insulin. Or a flat to live in. Same rule — whoever pays, gets it — and it stops being fine.
That gap is the whole argument of Unit 2: governments step in where whoever pays gives an answer we will not accept.
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Free market
- Owned by — people and firms
- Trainers sell out? Firms rush to make more. The price told them to.
- Seen in — phones, trainers, restaurants, streaming
Planned (command)
- Owned by — the government
- Trainers sell out? Nothing changes until the plan does. You queue.
- Seen in — state housing, state farms, state-run shops
Mixed
- Owned by — private firms and the state, side by side
- Trainers sell out? Firms make more, inside rules the government sets.
- Seen in — private shops and state schools, in every real country
Nobody sits at either extreme: Closest to free market: Singapore, Hong Kong.
Closest to planned: North Korea.
Mixed: the UK, Brazil, India, and every other country.
China is mixed too, but sits far nearer the planned end: private firms everywhere, while the state owns the big banks and heavy industry. It is the clearest proof that this is a scale, not three boxes.
There is no pure version of either end. So "is this country free market or planned?" is the wrong question. Ask how far along the scale.
Every organisation sits on one side or the other: Private sector — owned by people and firms.
Public sector — owned by the government.
Where the line between them should sit is the argument running through the rest of this course.
Private sector
- Owned by individuals and firms
- Exists to make a profit
- Paid for by what customers choose to spend
- Your phone network, the supermarket, a barber's.
Public sector
- Owned by the government
- Exists to provide a service
- Paid for by tax
- State schools, public hospitals, the fire service.
The same job, done by both: A state school and a private school teach the same subjects in the same classrooms.
What differs is who owns them and who pays — tax, or the family.
That is the whole distinction. It is about ownership, not about what the organisation does.
Two traps worth knowing: A public limited company is private sector. The word public there means anyone can buy its shares — not that the government owns it.
Private sector is not just small firms. The biggest companies in the world are private sector.
Why the examiner keeps coming back to this: Almost every long answer in Unit 2 is a version of the same question: should the government step in, or leave it to the market?
You cannot argue that unless you can say precisely who is on each side. Ownership is the word that earns the mark — the exam-style question next sets out exactly how.
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Two ways this is tested: A 2-mark define — private sector and public sector are both asked.
And behind the 15-markers: should the government step in?
The trap — picking a side: "Is the free market better than planning?" has no right answer. Choosing one scores nothing.
The marks are in what it depends on: what kind of good it is, whether it harms anyone outside the market, and how well the government actually works.
IB-style questionDefine[2 marks]
A text describes mining companies owned by private investors rather than by the state.
Define the term private sector.
Model answer plan
See the mark-by-mark plan — for / against / judgement, with marking guidance — in study mode.