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Standard Address: 12.1 Students understand common terms & concepts and economics reasoning. 1 CONTEMPORARY ECONOMICS: LESSON 3.2 © SOUTH-WESTERN Objectives LESSON 3.2 Regulating the Private Sector Explain how government, by establishing laws and regulations, can improve operation of the private sector. Distinguish between regulations that promote competition and those that control natural monopolies. Describe how fiscal policy and monetary policy reduce the ups and down of the business cycle. 2 CONTEMPORARY ECONOMICS: LESSON 3.2 © SOUTH-WESTERN Key Terms LESSON 3.2 Regulating the Private Sector private property rights antitrust laws natural monopoly fiscal policy monetary policy 3 CONTEMPORARY ECONOMICS: LESSON 3.2 © SOUTH-WESTERN Rules for a Market Economy Establish property rights Intellectual property rights Measurement and safety 4 CONTEMPORARY ECONOMICS: LESSON 3.2 © SOUTH-WESTERN Establishing Property Rights Private property rights guarantee individuals the right to use their resources as they choose or to charge others for the use. Governments play a role in safeguarding private property by establishing legal rights of ownership. 5 CONTEMPORARY ECONOMICS: LESSON 3.2 © SOUTH-WESTERN Intellectual Property Rights Laws also grant property rights to the creators of new ideas and new inventions. Patent Copyright Trademark 6 CONTEMPORARY ECONOMICS: LESSON 3.2 © SOUTH-WESTERN Measurement and Safety U.S. Bureau of Weights and Measures The U.S. Food and Drug Administration (FDA) The U.S. Department of Agriculture The Consumer Product Safety Commission 7 CONTEMPORARY ECONOMICS: LESSON 3.2 © SOUTH-WESTERN Checkpoint: Pg70 How can laws and regulations improve the operation of the private sector? Laws and regulations improve the operation of the private sector by providing a standard that everyone must meet and abide by. They allow the private sector to operate with order and fairness. 8 CONTEMPORARY ECONOMICS: LESSON 3.2 © SOUTH-WESTERN Market Competition and Natural Monopolies Adam Smith’s argument that the invisible hand of market competition harnesses self-interest to promote the general good. A business owner would prefer to be a monopolist – that is, to be the only seller a product. 9 CONTEMPORARY ECONOMICS: LESSON 3.2 © SOUTH-WESTERN Market Competition and Natural Monopolies Promoting market competition Antitrust laws attempt to promote competition and reduce anticompetitive behavior. 10 CONTEMPORARY ECONOMICS: LESSON 3.2 © SOUTH-WESTERN Market Competition and Natural Monopolies Regulating natural monopolies When it is cheaper for one firm to serve the market than for two or more firms to do so, that firm is called a natural monopoly. Government-owned and governmentregulated monopolies are called public utilities. 11 CONTEMPORARY ECONOMICS: LESSON 3.2 © SOUTH-WESTERN Checkpoint: Pg71 Why does government promote competition in some markets and control natural monopolies in others? Government promotes competition in some industries, such as retail, because the industry operates more efficiently under competition. In other cases, such as utilities, government promotes natural monopolies because the industry operates more efficiently in monopolies . For industries that require regulation, it is easier for the government to provide that regulation in a monopoly setting. 12 CONTEMPORARY ECONOMICS: LESSON 3.2 © SOUTH-WESTERN Growth and Stability of the U.S. Economy Fiscal policy uses taxing and public spending to influence national economic variables. When economist study fiscal policy, they usually focus on the federal government, although governments at all levels effect the economy. 13 CONTEMPORARY ECONOMICS: LESSON 3.2 © SOUTH-WESTERN Growth and Stability of the U.S. Economy Monetary policy tries to supply the appropriate amount of money to help stabilize the business cycle and promote healthy economic growth. 14 CONTEMPORARY ECONOMICS: LESSON 3.2 © SOUTH-WESTERN Checkpoint: Pg72 How do fiscal policy and monetary policy reduce the ups and down of the business cycle? Fiscal policy works by allowing the government to offset a slowdown in economic activity in the private sector by cutting taxes to stimulate consumption and investment. The Monetary policy works by putting more money into circulation during slow economic times to lower interest rates and encourage borrowing and spending. 15 CONTEMPORARY ECONOMICS: LESSON 3.2 © SOUTH-WESTERN 16 CONTEMPORARY ECONOMICS: LESSON 3.2 © SOUTH-WESTERN Assessment Key Concepts #1. #2. #3. #4. 17 CONTEMPORARY ECONOMICS: LESSON 3.1 © SOUTH-WESTERN Key Concepts 18 Assessment CONTEMPORARY ECONOMICS: LESSON 3.1 © SOUTH-WESTERN Assessment Key Concepts #5. Faster growth in money seems to cause lower interest rates, while slower growth or decline in money casue higher interests rates. 19 CONTEMPORARY ECONOMICS: LESSON 3.1 © SOUTH-WESTERN