Presentation on theme: "Why the Government gets involved. Mixed Economies – Market side The U.S. has….. Free Enterprise – very little government and more consumer sovereignty."— Presentation transcript:
Why the Government gets involved
Mixed Economies – Market side The U.S. has….. Free Enterprise – very little government and more consumer sovereignty Consumer Sovereignty = Consumers ultimately decide what gets produced Competition = when businesses compete for consumer $ Limited Government = The gov’t is expected to play a small role in our economy – basically their duty should be to prevent market failures.
Balancing Control with Freedom Each society must decide WHICH goals are most important Freedom, security and growth rank high in our system Government often interferes to prevent a MARKET FAILURE or to fix an existing market failure Market failure = over/underproduction that occurs when producers/consumers DO not have to bear full costs – usually related to externality or need for public good
Providing Economic Security Government must regulate to protect businesses, consumers, and workers – Protecting the PUBLIC INTEREST Consumer Protection: – Gov’t requires safe products – Law binding Contracts to protect bad deals Business Protection: – Gov’t bailouts – Tax breaks – Low interest loans for start up Workers – OSHA – Safety Gear – Wage protection
Public Goods Government provides PUBLIC GOODS Public Goods = a good or service that would be impractical for the private sector (business or individuals) to provide b/c there is no profit motive or incentive, so the public sector (gov’t) steps in. FREE RIDER – someone who benefits from not purchasing (a cheat). Ex: Alexa uses Shannon’s Six Flag Season Pass Examples – roads, dams, national parks, national defense, public education How does gov’t pay – taxing or borrowing money Government provides PUBLIC GOODS Public Goods = a good or service that would be impractical for the private sector (business or individuals) to provide b/c there is no profit motive or incentive, so the public sector (gov’t) steps in. FREE RIDER – someone who benefits from not purchasing (a cheat). Ex: Alexa uses Shannon’s Six Flag Season Pass Examples – roads, dams, national parks, national defense, public education How does gov’t pay – taxing or borrowing money
Our Opportunity Cost Government regulation means less economic freedom Weigh the costs and benefit of having gov’t involved What if government did not provide public goods? Why wouldn’t a producer want to provide these types of goods?
Externalities Externalities = A side-effect or third-party effect that occurs when the benefits or costs associated with a product affect someone other than the direct producer or direct consumer Positive Externality – enjoying the side effects of a good/service at no cost to you Negative Externality – when you pay an opportunity cost b/c of someone else’s product/service
Examples of Positive Externalities Parks – you do not pay for them, but you probably enjoy them Worker Training – another company trains people and you later high them – you enjoyed the train worker, but did not pay for his training A classmate post the answers to the homework on social media Roads – you enjoy using the roadway, but did not DIRECTLY purchase it Air Pollution Laws – you enjoy the benefit of cleaner air
Examples of Negative Externalities Negative externalities can lead to Market Failures Loud Music – you are losing sleep because your neighbor purchased new speakers Courtyard lunch ban – other students left trash, but now you cannot be in the courtyard during lunch. Pollution – a private plant opens a block away and you’re affected negatively by it’s pollution Bar/Club – a new one opens near your house and drives down your home value
Governments Goals Promoting freedom, security, stability and growth Public Policies seek to maintain three things HIGH EMPLOYMENT – gov’t pushes policies to ensure unemployment rates are low STEADY ECONOMIC GROWTH – each generation seeks to increase it’s GDP STABILITY – gives consumers, producers, and investors confidence
Societal Government Regulations Specific Regulations that protect the nation as a whole or the PUBLIC INTEREST EPA -Pollution laws – disposing of oil, land fields Food and Drug laws – set standards of production FCC – regulates radio, TV, etc OSHA – policies enacted to protect worker health EEOC – Equal employment and education opportunity laws Banking Protection – prevents banks from closing w/o returning money
Individual Government Regulations The gov’t establishes regulations to protect consumers and businesses Ex Patents/ Copyrights – gov’t protection on “ideas” and materials (books, movies, music, etc) Minimum Wage – set to protect workers Product safety – put in place for the consumers
The exchange between Businesses and Individuals The Circular Flow – Exchange between the Product and Factor Markets Two versions 1. Between Individuals & Businesses 2. Between Individuals, Businesses & Government
Circular Flow Businesses & Individuals Factor Market – The exchange includes an exchange of FACTORS (land, labor, capital) from the individuals to the businesses and an exchange of PAYMENT from businesses to individuals EX: The individuals provide a factor such as labor to the business and the business provides the individual with pay
Circular Flow Businesses & Individuals Product Market = This includes an exchange of GODDS/SERVICES from the businesses to the individuals and an exchange of PAYMENT from the individuals to the businesses EX: The business sells a product to the individuals and the individuals give the business a payment for that product