Download The Economic Functions of Government

The Economic Functions of
Government
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SSEF5 – The student will describe the roles
of government in a market economy.
A. Explain why government provides public
goods and services, redistributes income,
protects property rights, and resolves market
failures.
B. Give examples of government regulation
and deregulation and their effects on
consumers and producers.
Six Economic Functions of Government
1.
2.
3.
4.
5.
6.
Provide a legal system
Maintain competition
Provide public goods and services
Correct for externalities
Stabilize the economy
Redistribute income
Six Economic Functions of Government
1. Provide a legal system
– Define and enforce property rights
– Establish a monetary system
– Maintain access to information
– Knowledge is Power
• When individuals/consumers
are not informed many
things can happen:
– Fewer profits
– Lack of competitive wages
– Unsafe products, high prices
– Government Regulates to
maintain people’s access to
info
• Public Disclosure Laws
• Support of the Internet
Six Economic Functions of Government
1. Maintain the legal and social framework
2. Maintain competition
– Create and enforce antitrust laws
– Regulate natural monopolies
Inadequate Competition
– Competition-Sellers compete against each other to
attract customers
• leads to lower prices
• better quality goods/services
• better customer service
– Monopolies dangerous.
• Limited choice
• low quality goods/services
• higher prices
• Inefficient use of resources
– Government creates/enforces anti-trust (monopoly)
laws to maintain effective levels of competition
Six Economic Functions of Government
1. Maintain the legal and social framework
2. Maintain competition
3. Provide public goods and services
– Public goods and services are those that
markets will not provide in sufficient
quantities
Examples: roads, police
protection, fire protection,
national defense, schools, public
libraries, public parks, etc.
Six Economic Functions of Government
3. Provide public goods and services
4. Correct for externalities
– Unintended side effect of doing business
– Side effect that affects an uninvolved 3rd party
– Can be positive or negative
• Examples:
– Pollution, noise near airport, traffic near a shopping center, better
roads because of a new sports stadium
Externalities
• Government can
manage
externalities by
using
–tax policies
–regulations
–incentives
Six Economic Functions of Government
1.
2.
3.
4.
5.
Maintain the legal and social framework
Maintain competition
Provide public goods and services
Correct for externalities
Stabilize the economy
– Reduce unemployment and inflation
– Promote economic growth
Six Economic Functions of Government
1.
2.
3.
4.
5.
6.
Maintain the legal and social framework
Maintain competition
Provide public goods and services
Correct for externalities
Stabilize the economy
Redistribute income
◦ Redistribute income from people who have
higher incomes to those with lower incomes
◦ Examples: Social Security, Medicare/Medicaid,
welfare programs
Six Economic Functions of Government
1.
2.
3.
4.
5.
6.
Maintain the legal and social framework
Maintain competition
Provide public goods and services
Correct for externalities
Stabilize the economy
Redistribute income
Activity Time!
Life on a
Dismal Lake
Time for Another Activity
Economics is
soooo dreamy!
Classify the Headlines according to the function of
government.
1. Federal Reserve Raises Key Interest Rate ___
2. Congress Raises tax rates for Top Income Brackets
___
3. EPA Plan to Reduce CO2 Emissions ___
4. Homeland Security Funding Increased ___
5. President Says More Spending Will Fight
Recession ___
6. Agency Blocks merger of Two Airlines ___
Classify the Headlines
7. City Police Increase Neighborhood Patrols ___
8. Lawsuit Establishes Patent Rights ___
9. Legislature Passes Funding for Subsidized Housing
___
10. New Info from Government Agency Helps
Consumers Choose Wisely ___
11. Songwriter Sues Singer: Says Songs Stolen ___
12. County Funds Free Flu Vaccinations ___
Let’s Check!
1. Federal Reserve Raises Key Interest Rate
1. (Stabilize the economy)
2. Congress Raises tax rates for Top Income
Brackets (Redistribution of income)
3. EPA Plan to Reduce CO2 Emissions
1. (Correcting externalities)
4. Homeland Security Funding Increased
1. (Providing public goods/services)
5. President Says More Spending Will Fight
Recession (Stabilize the economy)
6. Agency Blocks merger of Two Airlines (maintain
competition)
Let’s Check!
7. City Police Increase Neighborhood Patrols (providing
public goods/services)
8. Lawsuit Establishes Patent Rights (maintaining a social/legal
framework)
9. Legislature Passes Funding for Subsidized
Housing (redistribution of income)
10. New Info from Government Agency Helps
Consumers Choose Wisely (maintaining legal and social framework)
11. Songwriter Sues Singer: Says Songs Stolen (maintaining
legal and social framework)
12. County Funds Free Flu Vaccinations providing public
goods/services
Regulation Examples
Government regulation is typically a legal restriction or
requirement by the
government on the way a good or service is produced, allocated,
or priced.
•There are literally thousands of examples.
•Some of the more common regulations include minimum wage,
health standards for hotels/restaurants, hiring/firing practices of
companies, the way pollution andwaste is dealt with, safety
requirements for consumer products, requirements to post
information about food for restaurants, etc.
•Some services like water, electricity, communications, travel, etc
are heavily regulated to make these goods available to the widest
number of people possible.
•Regulations affect consumers AND producers.
•Producers are affected mainly because regulations increase the
cost of doing business.
Regulation Examples
•Resources that could be used to produce a
good or service instead must be reallocated to
meeting the regulation (with time often being one
of the biggest resources needed for this).
•For consumers, the effects of regulations are a
bit mixed.
•The increased cost of doing business on the
producer likely means increased prices for the
consumer.
Regulation Examples
• However, some regulations are actually
desirable for the consumer like health
inspections of restaurants, minimum safety
requirements for automobiles, requirement
for licenses to be a doctor or lawyer or
teacher, etc.
Deregulation Examples
•Government de-regulation is the reduction by a
government of its interventional role in the
functioning of the economy.
•This allows greater freedom to all the players in the
marketplace to operate.
•The rationale for deregulation is that fewer and
simpler rules will raise the level of competition,
generate higher productivity, more efficiency and
lower prices.
Deregulation Example
•However, too much deregulation could lead to
compromising quality standards, financial uncertainty,
and the creation of monopolies.
•Government deregulation has happened in industries
including trucking, communications, banking, and
airlines.
•For the most part, these de-regulated industries have
seen more competition, easier market entry, and more
competitive consumer prices (though not always).
•Some critics argue, however, that these industries have
taken on unnecessary risk (especially in banking) and
actually raised prices for some basic consumer
services.
Assessment
Assessment
1. Public goods and services are
a) All goods and services paid for by the
government
b) Goods and services provided by publicly held
companies
c) Goods and services that would not be
adequately provided by the market.
d) Goods and services that are available to the
public.
Assessment
2. Establishing and enforcing clearly defined property
rights is an example of government
a) Providing a social and legal framework.
b) Maintaining competition
c) Providing public goods and services
d) Redistributing income
Assessment
3. Smoke from a factory drops ash all over your car.
Government’s economic function in this case is to:
a) Stabilize the economy
b) Maintain competition
c) Provide public goods and services
d) Correct a negative externality.
Assessment
4. The Federal trade Commission recommends that
the Smokin’ Hot Computer Corporation be broken
into several smaller, independent companies. This
is an example of the government’s function of:
a) Maintaining competition
b) Redistributing Income
c) Maintaining the Legal and Social framework
d) Providing public goods and services
Assessment
5. The fed announced today that it will cut a key
interest rate by two basis points. This is an example
of the government’s function to
a) Correct for externalities
b) Stabilize the economy
c) Redistribute income
d) Maintain the legal and social framework
Assessment: Extended Response
6. Federal regulations now require Internet radio
stations to pay substantial royalty fees (fees to
artists and songwriters) for the music they play.
Some stations were not able to pay the fees and
have gone “off the air.” What economic function of
government is this an example of? Who benefits
from the regulation? How? Why? Who loses
because of the regulation? How? Why? What
argument would you make for and against the
regulation?
Assessment Check
Please trade papers with someone outside
your team.
Assessment Check
1. Public goods and services are
a) All goods and services paid for by the
government
b) Goods and services provided by publicly held
companies
c) Goods and services that would not be
adequately provided by the market.
d) Goods and services that are available to the
public.
Assessment Check
2. Establishing and enforcing clearly defined property
rights is an example of government
a) Providing a social and legal framework.
b) Maintaining competition
c) Providing public goods and services
d) Redistributing income
Assessment Check
3. Smoke from a factory drops ash all over your car.
Government’s economic function in this case is to:
a) Stabilize the economy
b) Maintain competition
c) Provide public goods and services
d) Correct a negative externality.
Assessment Check
4. The Federal trade Commission recommends that
the Smokin’ Hot Computer Corporation be broken
into several smaller, independent companies. This
is an example of the government’s function of:
a) Maintaining competition
b) Redistributing Income
c) Maintaining the Legal and Social framework
d) Providing public goods and services
Assessment Check
5. The fed announced today that it will cut a key
interest rate by two basis points. This is an example
of the government’s function to
a) Correct for externalities
b) Stabilize the economy
c) Redistribute income
d) Maintain the legal and social framework
Assessment Check
Federal regulations now require Internet radio
stations to pay substantial royalty fees (fees to
artists and songwriters) for the music they
play. Some stations were not able to pay the
fees and have gone “off the air.” What
economic function of government is this an
example of? Who benefits from the
regulation? How? Why? Who loses because
of the regulation? How? Why? What
argument would you make for and against the
regulation?
Assessment Check
These regulations are an example of government
policy aimed at establishing and enforcing property
rights. The protection of property rights is an
element of the legal and social framework
government establishes. In this case, singers and
songwriters benefit from the legal protection in
question; the regulation maintains their property
rights and their incentive to produce music. Radio
station operators and listeners lose, because there
are fewer Internet radio stations and less choice for
listeners.
Homework
Many city governments subsidize the
construction of sports stadiums as a way
to attract or hold on to sports teams.
First, write an argument for this practice,
using the economic functions of
government to support your claim. Then
present an alternative view, arguing
against your initial claim.