Transcript Chapter 23 Government and the Economy

Chapter 23- Government
and the Economy
Providing Public Goods
 Private goods are goods that when consumed by
one individual, cannot be consumed by another
(Ex. Clothes, food, haircuts, etc.)
 These goods are subject to the exclusion principle
which means a person is excluded from using the
good or service unless they pay for it
Providing Public Goods
 Public goods are goods that can be consumed by
one person without preventing consumption of
the good by another (Ex. Libraries and parks)
 These goods are subject to the nonexclusion
principle which means no one is excluded from
consuming the benefits of the good whether or
not they pay
Providing Public Goods
 An externality is the unintended side effect of an
action that affects someone not involved in the
action; they can be positive (bonuses) or negative
(pollution)
Maintaining Competition
 A monopoly is a sole provider of a good or service,
there is no competition and they can charge whatever
price they want and consumers could suffer
 The government tries to encourage competition
through antitrust laws to control monopolies and
preserve and promote competition
Standard Oil was seen as a monopoly; it controlled 90% of oil refining companies in the US
in 1890
Maintaining Competition
 In 1890, the federal government passed the
Sherman Antitrust Act which banned monopolies
and other forms of businesses that prevented
competition
Maintaining Competition
 A merger is a combination of two or more
companies to form a single business, these can
sometimes threaten competition
Maintaining Competition
 A natural monopoly occurs when the costs of
production are minimized by having a single firm
produce the product, in exchange for this the firm
agrees to government regulation (Ex. Gas,
electricity, water services)
Maintaining Competition
 The Food and Drug Administration deals with
labeling of food, drugs, and cosmetics; the Federal
Trade Commission deals with false advertisements
and product claims
Maintaining Competition
 Product safety is an
important area of
regulation, if a
product poses a
safety hazard the
government issues
a recall where the
product is pulled
off the market
Measuring Growth
 Real GDP shows an economy’s production after
distortions of price increase have been removed,
this eliminates the impression that output goes
up when prices do
Measuring Growth
 The economy goes through alternating intervals of
growth and decline that we call the business cycle
(line moves up, GDP grows, moves down it declines)
 An economic peak is the highest point of economic
prosperity; a trough is the lowest point in the
business cycle
Business Fluctuations
 An economic
expansion takes
place when real GDP
goes up; it reaches
its highest point and
then begins to
decline
 A recession takes
place when real GDP
goes down for six
straight months
Business Fluctuations
 If a recession becomes severe, it may turn into a
depression
Unemployment during the Depression
Business Fluctuations
 The unemployment rate is the percentage of
people in the civilian labor force who are not
working but are looking for jobs; this is a
measure of the economy
Business Fluctuations
 Fiscal policy is
changes in
government
spending or tax
policies; the
government does
this to help the
economy (Ex.
Cutting taxes or
increasing spending)
Business Fluctuations
 Another important indicator of an economy’s
performance is inflation, a sustained increase in
the general level of prices, it reduces people’s
purchasing power
Business Fluctuations
 A way to measure inflation is by studying the
Consumer Price Index which is a measure of the
price level of 400 products commonly used by
consumers
Stocks and Stock Markets
 Investors buy stock to make money; profits come
in two ways- from dividends or from capital gains
 A dividend is a share of the corporation’s profits
that are distributed to shareholders; a capital gain
occurs when stock can be sold for more than it cost
to buy
Stocks and Stock Markets
 The price of a stock is determined by supply and
demand; investors consult stock indexes to
measure stock performance (Ex. Dow-Jones and
S&P 500)
 Stocks are bought and sold in a stock market, or
stock exchange, you can call a stockbroker who
can buy or sell your stocks
Stocks and Stock Markets
 Most stocks in the US are traded on the New York
Stock Exchange, the American Stock Exchange, or
the NASDAQ
Income Inequality
 Three influences on
income: level of
education, family
wealth, and
discrimination
Poverty
 The goal of the food stamp program is to alleviate
hunger and malnutrition by allowing low-income
households to obtain a more healthful diet
Poverty
 Another program is
the Women Infant
and Children
program which
provides help with
nutrition and
healthcare to lowincome women,
infants, and
children
Poverty
 Supplemental Security
Income gives payments
to blind or disabled
people and to persons 65
and older; Temporary
Assistance to Needy
Families makes
payments to families who
need help because a
parent is dead, disabled,
or absent
Poverty
 Workfare describes programs that require welfare
recipients to exchange some of their labor in
exchange for benefits; it teaches people job skills
Poverty
 Another way the government helps the poor is with
a progressive income tax the tax rate is lower at
lower incomes and higher at higher incomes
Poverty
 The Earned Income Tax Credit gives tax credits
and cash payments to qualified workers