1. Chapter 3: The public and private sectors

2. The Private Sector  I. The Private Sector- includes 3 groups of economic decision makers  A. Households- the main star in a market economy 1. Change in labor force- Examples: women enter workforce; 2 parents working 2. Rise of 2 income households (1950=15%, 2000=55%)- % of population that had 2 people per household working 3. Maximize their utility (income)

3. The Private Sector  B. Firms- Gov’t/Factories 1. Cottage industry- when people came to U.S. (small cities and agriculture) 2. Industrial Revolution- began in Great Britain around 1750/ Began in U.S. around 1850 3. More than 25 million profit-seeking firms in the U.S., 2/3rds of these are small. Each year 1 million start, and nearly that many fail-(most fail)  C. The Rest of the World- our Households can be affected by the rest of the world 1. Consists of households, firms, and gov’ts in more than 200 countries 2. International trade (See p. 66 figure 3.2)- Trade wheat because we have a comparative advantage

4. Regulating the Private Sector  A. Rules for a Market Economy 1. Establishing property rights (role of individuals & gov’ts) 2. Intellectual property rights:”  a. Patent (design patents last 14 yrs or 20 yrs)  b. Copyright- anything written (Ex: write a song, book, artist, movie, composer, music)  c. Trademark- (Ex: Nike swoosh symbol) 3. Measurement and safety (How does the gov’t help consumers?)

5. Regulating the Private Sector  B. Market Competition & Natural Monopolies 1. Promoting market competition (antitrust laws) 1st one was Sherman Antitrust Law passed in 1890 to break up monopolies like Rockefeller’s 2. Regulating natural monopolies (public utilities)  C. Growth & Stability of the U.S. Economy 1. Fiscal policy- federal gov’ts use of taxing and public spending to influence the national economy (Ex: military, teachers, firemen, police, postal service, DOT, building buildings) a. During the summer of 2003, Congress passed a variety of tax cuts designed to stimulate the economy b. If economy is growing so fast as to cause inflation (purchasing power diminishes), the gov’t should increase taxes and reduce its own spending

6. Regulating the Private Sector  2. Monetary policy- the central bank’s attempts to control the money supply to influence the national economy a. The Federal Reserve (the Fed) is the central bank of the U.S. (loan $ to local banks), led by Ben Bernake- he also has advisors (p. 501- 12 areas) b. How does the Fed increase or decrease the money supply? 1. Raise or lower interest rates (1% is the lowest rate possible)- Ex: multi- millionaires 2. Issue more $

7. Public Goods and Externalities  Rival= Competition  Nonrival= No competition  Exclusive= I own it  Nonexclusive= I don’t own it  A. Private Goods, Public Goods, and In Between (p.78)  1. Private goods- 2 main features- they are rival in consumption and exclusive  a. Rival- share a pizza with a friend, each slice they eat is one less for you  b. Exclusive- suppliers can easily exclude those who don’t pay  2. Public goods- are nonrival and nonexclusive and are provided by the gov’t with tax $$ (Ex: national defense, public schools, 911 service)  3. Quasi-public goods- nonrival but exclusive (Ex: TV signals are nonrival but the show’s producer can charge advertisers or do pay per view)- TV antenna, pay for cable  4. Open-access goods- rival but nonexclusive (Ex: fish and migratory game are rival, because a fish caught and kept or a killed goose cannot be done so again, but they are nonexclusive because it is too costly to block access to these goods  - See Summary Table, 3.3 on pg.78

8. Public Goods and Externalities  B. Externalities  1. Negative externalities- bad by-products of production or consumption that impose costs on third parties (Ex: Pollution)  2. Positive externalities- good/beneficial by-products (Ex: getting immunized not only protects you but others also, society benefits from education, flu shot)

9. Income and Poverty  1. The median/average income in the U.S. is about 67k, and 33k in Georgia.  2. Per-capita (per house or person) income in the U.S. is33k, in Georgia $30,050- BEST way to measure anything.  3. Poverty level in U.S. for family of 4 is 19k.  A. Why households income differ: (# of workers)  1. Age- older people usually get paid more $  2. Ability- more knowledge= more income $  3. Education- the more you have usually = more income $  4. Dual Families/ or 2 Incomes  5. Genders- get paid differently  6. Ethnicity/Race- get paid differently

10. Income and Poverty  B. Poverty and Marital Status: (See pg. 85)  1. Married couples make more $  2. Men make more $  3. Whites make more $  C. Programs to Help the Poor: (See pg.86)  1. Social insurance- Ex: social security, Medicare, etc.  2. Income-assistance programs- Ex: welfare programs, food stamps, WIC-welfare income coupons  - Cash transfer programs- Ex: Social security taxes  - In-kind transfer programs Ex: Goods & services to help the poor- food from church, meals on wheels  3. Earned-income tax credit- a type of investment account  D. Welfare reform legislation of 1996- reduced/lowered the # of people on welfare  - What is our gov’t poverty level? $19,800