Transcript Today`s Warm Up

Today’s Warm Up
• Answer in your notes:
• Brainstorm jobs the government does.
List as many functions of local, state, and
federal government as you can.
Gov’t in the Market
• Although pure market economies
referred to as laissez-faire systems,
all levels of gov’t in the U.S. affect our
economy
• Mixed Market
• Which items listed in your warm up relate to the
economy?
Provide a Legal System
• Gov’t makes and enforces laws
including those which protect private
property rights (intellectual and
physical)
Maintain Competition
• Protects consumers, employees, and the
general public (i.e. anti-trust laws, FDA,
etc.)
Redistributes Income
• Taxes those with higher incomes and
helps those in need
– i.e. social security, unemployment, etc.
Stabilize the Economy
• Reduces unemployment and inflation
• Promotes economic growth
Provide Public g/s
• Includes those g/s private businesses
wouldn’t provide
– Teachers, public libraries, roads, etc.
• How do we know which g/s should be
private vs. public?
Surprise…
POP QUIZ
•
P.S. I will sell you the answers for $1. I will accept an IOU if you don’t have
cash with you today. Raise your hand if you’re interested in buying an A on
this quiz. First product grade!!!!!!!!!!!!!! Oh, and NO SHARING the answers.
Only those who pay $1 will get the answers.
Quiz Questions (…and answers)
1. Who wrote, “In this world nothing is
certain but death and taxes”?
•
Answer: Benjamin Franklin
2. Who was the author of The Wealth of
Nations?
•
Answer: Adam Smith
3. What does TNSTAAFL stand for?
•
Answer: There’s no such thing as a free
lunch.
Public Goods and Services
• Public g/s are provided by the gov’t
through tax dollars
• Often (but not always) have the following
characteristics
– Shared consumption – when one person
consumes a public g/s, it doesn’t prevent
others from also consuming the g/s
– Nonexclusion – difficult or impossible to
exclude others from consuming the good,
even if they didn’t pay for it
Public Goods and Services
• Creates free rider problem – many
people unwilling to pay for public g/s
because they know they can consume
without paying; private businesses lack
incentive to produce such g/s
– i.e. national defense
Market Failure: Externalities
• Occur when market prices fail to reflect all costs
& benefits involved; spills over to third parties
• Positive Externalities – benefits enjoyed by
someone who did not produce or pay to
consume a product
– i.e. elementary education; society as a whole benefits
when others can read and write
• Negative Externalities – costs paid by
someone who does not produce or pay to
consume a product
– i.e. air pollution caused by cigarette smoking
Activity: Life on Dismal Lake
• Four actors needed for Act I:
– Mama Smith
– Papa Smith
– Smith teenager #1
– Smith teenager #2
• Another actor needed for Act II:
– Snively Whiplash
• The rest of you are needed for Act III:
– New families at the lake
Market Failure: Externalities
• People respond predictably to (+) and (-)
incentives
• Positive externalities lead to underproduction;
producers lack incentive to produce g/s where
people can consume them without paying
• Negative externalities lead to overproduction;
producers have incentive to produce in private
sector when costs imposed on others
Government’s Role
• Economic role for gov’t justified when
benefits of gov’t policy outweigh the
costs
• Gov’t intervention can:
– Provide public g/s that wouldn’t be
provided in efficient amounts in the
private sector
– Correct for (+) and (-) externalities to
improve efficiency
Externalities Poster
• Come up with one
example of a positive
externality.
• Explain how it would lead
to underproduction if left
to the private sector.
• Describe how gov’t
intervention could correct
such a market failure.
• Come up with one
example of a negative
externality.
• Explain how it would lead
to overproduction if left
to the private sector.
• Describe how gov’t
intervention could correct
such a market failure.
Today’s Exit Ticket
• Answer today’s LEQ!