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Download 7 Roles of Government in a mixed economy
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Roles of Government in a mixed economy Government in the Circular Flow Model Supplies goods and services to business firms and households Demands resources in resource markets Taxes household income and business revenues Transfers income to households 7 Roles of Government in a mixed economy 1. Establishing and enforcing rules of exchange a.Property rights b.Contract law 7 Roles of Government in a mixed economy 2. Promoting competition/prevent anticompetitive practices 7 Roles of Government in a mixed economy 3. Regulating natural monopolies One firm that can serve the entire market at a lower per- unit cost than can two or more firms 7 Roles of Government in a mixed economy 4. Provide public goods Technical characteristics of public goods: Non rival consumption High cost of excluding those who do not pay Public v. private goods Cost of exclusion→ high Pure public Private 0 high Degree of rivalness→ 7 Roles of Government in a mixed economy 5. Dealing with externalities Externality is a cost or benefit that falls on third parties and is therefore ignored by the two parties to the market transaction a. Negative externality – cost imposed on others b. Positive externality – benefit gained by others Visibility Impairment from Air Pollution Shenandoah National Park - Virginia 7 Roles of Government in a mixed economy 6. Redistribute income President F.D. Roosevelt Signing the Social Security Act of 1935 7 Roles of Government in a mixed economy 7. Promote macroeconomic goals of: a. Full employment b. Price stability c. Economic growth Monetary policy pursued by the Federal Reserve Fiscal policy pursued by the Federal government
