Bell Work In what market would the following transaction occur: Steven receives a haircut from DJ’s hair salon. Product market c. Factor Market Business market d. Individual market

Revenue: Money the government is bringing in (form of tax $) Expenditures: Money the government is spending

Government’s Role in the Economy

1. Promoting Growth and stability A. Employment B. Stability Growth Responds to market failures **Uses fiscal & monetary policy to do this

Correcting Market Failures A situation in which the market, on it’s own, does not distribute resources efficiently A. Externalities: economic SIDE EFFECT of a good/service that generates a benefit or cost to someone else other than the person deciding how much to produce or consume

Positive externality: beneficial side effect ----government encourages Negative externality: negative side effect and unintended costs----government discourages

2. Encouraging Innovation New technology Fund research and develop projects Patents

3. Providing Public goods

What is a Public Good? Shared good or service which would be impractical to make consumers pay individually and to exclude non-payers---must be provided by the government (paid for by the taxpayers)

Examples of Public Goods Traffic light Stop signs Roads/Bridges Side walks City Parks

4. Provides Income support Programs that insure a minimum standard of living for people, despite unemployment or old age Medicare Medicaid Social Security

In-kind benefits: Medical benefits & Education benefits Poverty problem: poverty threshold is income below which is needed to support households Determined by Federal Government Welfare: aid to the poor Redistribution Programs: cash transfers, Social security, unemployment comp. and worker’s comp. In-kind benefits: Medical benefits & Education benefits Medicare: elderly Medicaid: poor

5. Safety of the People Must provide customers with information to make educated decisions Public disclosure laws: require companies to give consumers important information about their products

Environmental Protection: Public Health and Safety: sets manufacturing standards, requires drugs to be safe and effective Environmental Protection: E.g.: make sure gasoline is disposed of properly