1. Market failure and Government’s role

2.  DEFINITION: Whenever the market system  (supply and demand running the economy) fail to give society the best results. Examples include:  High unemployment  High inflation  Homelessness  Monopolies  Excessive pollution  Lack of health care  Etc., etc., etc.

3.  What does the guns vs. butter analogy imply about government intervention? 

4.  Additional spending on the homeless?  On health care for everyone?  More research for an AIDS cure?  Better schools?  Cleaning up the environment?

5.  DVD Ch. 18 - From Deficits to Debt – government spending, taxing, borrowing 

6.  Merit goods: Goods that benefit society, but tend to be underprovided by the market system. Examples: hybrid cars, trees, health care  Demerit goods: Things that are harmful to society, but tend to be overprovided by the market system. Examples: cigarettes, big SUVs, booze

7.  Pollution Economics: Negative Externality (a cost to society, not factored into the cost of something)  http://www.youtube.com/watch?v=BPE2G92 Vmpg http://www.youtube.com/watch?v=BPE2G92 Vmpg

8.  Not really? But check it out anyway!  Positive externalities: A benefit to society that isn’t included in the cost of an item. Example: you buy and plant trees that make the area prettier and the air a bit cleaner for everyone.

9.  Direct provision of goods and services ·  The extension of property rights  Taxes (on demerit goods) and subsidies (merit goods)  Tradeable pollution rights  Regulation, legislation and direct controls  Advertising

10.  Definition: When the government intervenes in the market, and makes things worse, or fixes one problem but creates another.  Example: Rent control  The rent is too damn high! Video http://www.youtube.com/watch?v=Gg5Swy TvAHw http://www.youtube.com/watch?v=Gg5Swy TvAHw

11.  Progressive: The more income, the higher percentage tax paid  Proportional: Everyone pays the same percentage of their income in tax  Regressive: Lower income people pay a higher percentage of their income in taxes

12.  Should people pay based on their ability to pay  or how much they use what the government provides?  Should the rich old guy with no kids pay 20 times as much for schools as the poor guy with 3 kids in school?  Should the poor guy get the full benefit of our schools, roads, military, etc. without paying any taxes?

13.  Who’s responsible for your well-being: you or Big Brother?  How much should government protect and help those who are in the country illegally?

14.  It’s been a while!