1. Government and Free Enterprise
Unit 3.3

2. Providing Public Goods
Goods and services provided by government funded by taxes
People who do not pay cannot be excluded
Use of the goods by one person does not diminish it for anyone else (street lights)
Free Riders
People who choose not to pay for a service, but benefit anyway
Business will not provide public goods because they cannot force people to pay for it
Market Failure
When people are not a part of a transaction, but either benefit from it or pay the costs, then there is a market failure
Shared Responsibilities
Some goods and services cross the public/private boundary, such as roads
Infrastructure

3. Managing Externalities
Externality
Externalities are when transactions take place and a third party who has not consented is also affected
Negative Externality
Costs of pollution or other negative activities that can cause health problems, financial hardship
Positive Externality
Benefits accrue even though you are not involved (unions and benefits/pay)
Subsidy

4. Public Transfer Payments
Safety Net
Government programs designed to help people with economic hardships
Redistributing Income
Transfer Payment
A transaction without a return (a gift)
Public Transfer Payment
Government transfers monies from taxpayers to recipient s who do not provide any goods in return
Transfers to reduce poverty (Medicaid, welfare, foods stamps)
Large transfers (subsidies) also go to large corporations, even when they pay no taxes