1. 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

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

5. Government’s Role in the Economy

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

7. 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

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

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

10. 3. Providing Public goods

11. 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)

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

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

14. 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

15. 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

16. 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