government and free enterprise chapter 3, section 3 economics
TRANSCRIPT
Government and Free Government and Free EnterpriseEnterprise
Chapter 3, Section 3Chapter 3, Section 3
Economics Economics
How do we know when How do we know when government SHOULD provide a government SHOULD provide a
good or service?good or service? There are transactions where both buyer and There are transactions where both buyer and seller assume the cost and benefitseller assume the cost and benefit These are mostly left to the These are mostly left to the Free Enterprise (or Free Enterprise (or
“private”) “private”) sector of our economysector of our economy Buying a car, for exampleBuying a car, for example
But there are other transactions in which But there are other transactions in which someone OTHER than the buyer or seller someone OTHER than the buyer or seller benefits or pays the costbenefits or pays the cost In this case, we say that a “market failure” has In this case, we say that a “market failure” has
occurred. occurred. And in these cases, government sometimes will And in these cases, government sometimes will
provide the good or service.provide the good or service. The The PUBLIC SECTORPUBLIC SECTOR
Military, social security, etc.Military, social security, etc.
Public Sector GoodsPublic Sector GoodsAll of the goods and services provided by All of the goods and services provided by
the gov’t - funded by taxesthe gov’t - funded by taxesEx. Street lighting system, police and fire Ex. Street lighting system, police and fire
departments, education departments, education
• 2 characteristics:• Can’t be taken away even though you don’t pay directly for them.• Your use of the good/service does not diminish or reduce another’s use of the good or service.• Street lights, military, fire department
The “Free Rider” problemThe “Free Rider” problem
A person who chooses A person who chooses not to pay for a good or not to pay for a good or service, but who service, but who benefits from it anywaybenefits from it anyway
Since this problem Since this problem exists, businesses will exists, businesses will sometimes choose NOT sometimes choose NOT to provide some to provide some servicesservicesWhere those services are Where those services are
demanded, government demanded, government will often step inwill often step in
Fireworks displayFireworks display
Shared ResponsibilitiesShared Responsibilities
Sometimes the private and public Sometimes the private and public sector share the responsibility for a sector share the responsibility for a good or servicegood or serviceToll roads, some parks (camping fees)Toll roads, some parks (camping fees)
Most infrastructure, mass transit, highways, water and sewer costs are funded by both the private and public sector
Managing ExternalitiesManaging Externalities
Externality- Externality- Side effect of a Side effect of a
transaction which transaction which affects someone affects someone other than buyer or other than buyer or sellerseller
Negative Externality- Negative Externality- Imposes costs on Imposes costs on
people who were not people who were not involvedinvolvedPollutionPollution
Gov’t seeks to limit Gov’t seeks to limit these through these through regulationsregulations
Positive ExternalityPositive Externality
This creates This creates benefitsbenefits for people who for people who were not involved with economic were not involved with economic activityactivity
I open up a Taco Bell in Cranberry. It will I open up a Taco Bell in Cranberry. It will create jobs, bring in other businesses, and create jobs, bring in other businesses, and increase home valuesincrease home values
Gov’t works to increase these positive Gov’t works to increase these positive externalities, sometimes using externalities, sometimes using subsidiessubsidies
Gov’t SubsidiesGov’t Subsidies
Gov’t provides money to help cover Gov’t provides money to help cover the cost of an economic activity that the cost of an economic activity that may help lots of people.may help lots of people.
May provide money to drug developer for new May provide money to drug developer for new medicines which will benefit whole communitymedicines which will benefit whole community
What would be another example of a community benefit through subsidy money?
Transfer PaymentsTransfer PaymentsTransfer of Transfer of
income from one income from one person or group person or group to another even to another even though the payer though the payer receives nothing receives nothing in returnin returnGov’t provides Gov’t provides
safety net safety net programs to programs to protect people protect people from economic from economic hardshiphardship
Ex. Welfare, Social Ex. Welfare, Social Security, Security, Unemployment benefitsUnemployment benefits