Transcript Role of Government

Role of Government
In a Mixed Market Economy
Four primary players in the
economy
• Entrepreneurs
–
–
–
–
Provide jobs
Provide goods and services
Provide tax revenue to govt.
Philanthropic donations
• Consumers
– Consumer sovereignty: Consumer is King – ultimate decisionmaker in the economy. Entrepreneurs produce what they think
consumers want. If they don’t buy, they stop producing.
• Labor (more on this later)
• Government
– Plays 6 basic roles:
Maintaining Legal and Social
Framework
• Example:
– Create laws (such as lemon laws that require firms to refund
faulty products, public disclosure laws, false advertising laws)
– Create enforcement agencies (Pure Food and Drug
Administration),
– Define and enforce property rights.
• What type of laws require
nutrition information and
product warnings on
product labels?
Maintaining Competition
• Example: Create and
enforce antitrust (antimonopoly) laws;
regulate natural
monopolies to ensure
consumer protection
(performed by the Federal
Trade Commission and the
US Department of Justice)
Providing Public Goods and
Services
• Example: Provide goods and services that
markets are unable or unwilling to provide,
– National defense, parks, libraries, public
education, police, etc.
Redistributing Income
• Example: Higher income tax rates for rich
than for poor to provide social security,
and aid to dependent children, Medicare,
Medicaid, Welfare.
• This takes $ from rich
and redistributes it in
the form of services
to the poor
Correcting for Externalities
• An Externality is an impact on any party not directly
involved in an economic decision.
• Externalities exist when some of the costs or benefits
associated with the production or consumption of a
product "spill over" to third parties.
• Example: Taxes to reduce negative externalities, such as
environmental pollution; subsidies to encourage positive
externalities, such as education, law suits to recover
costs.
Stabilizing the Economy
• Example: Use government budgets and the
money supply to promote economic growth,
control inflation, and reduce unemployment.
• By taxing and spending: fiscal policy
• Federal Reserve influence on interest
rates: monetary policy
Questions
1.
2.
3.
4.
5.
Who are the 4 players in the economy?
What are the 4 roles entrepreneurs play?
What is consumer sovereignty?
Give 3 examples of public disclosure laws:
What role is the govt. playing when it passes
anti-trust laws?
6. List 3 public goods and services the govt.
provides:
7. How does the govt. help to stabilize the
economy?
8. Give three examples of the govt. redistributing
income
Activity