Economic Functions of Government

1. Economic Functions of Government SSEF5 The student will describe the roles of government in a market economy. a. Explain why government provides public goods and services, redistributes income, protects property rights, and resolves market failures. b. Give examples of government regulation and deregulation and their effects on consumers and producers.

2. Would you…? • Pay for some other child’s school? • Pay for somebody else’s bus ride? • Pay to clean a restroom at a park? • Pay to build a new road outside of your house? • If you have answered no to these questions, then you understand why we need government interaction in the economy. • If you answered yes…well…congrats! You’re a great human being.

3. Government’s Role • 1) Provide a Legal System • 2) Maintain Competition • 3) Public Goods and Services • 4) Redistribute Income • 5) Correct Market Failures • 6) Stabilize the Economy

4. Provide a Legal System • Make and enforce laws to protect private property rights • Examples: • courts, monetary system

5. Maintain Competition • Regulates monopolies • Examples • Anti-trust laws

6. Public Goods and Services • Uses tax dollars to provide goods and services that private individuals wouldn’t provide • FREE RIDER PROBLEM- available to everyone, even those who don’t pay. • Examples: • Parks, national defense, schools

7. Redistribute Income • Taxing large income groups to provide for those in need • Examples: social security, medicare, medicaid

8. Resolve Market Failures • Corrects externalities • Positive externality- unintended benefit • Negative externality- unintended cost • Examples: • Environmental pollution, subsidies, education

9. Stabilize the Economy • Reduces unemployment and inflation and promotes economic growth • Examples • Government budgets, monetary supply

10. Review • Get into groups of 2-3. • Illustrate two different examples of how the government intervenes in a market economy. • Be prepared to share your illustrations and explain them to the class.