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The Role of Government in a Market Economy

The Role of Government in a Market Economy. 1. Provide a legal system. Make and enforce laws and to protect private property rights. 2. Maintain competition. Regulate monopolies. 3. Redistribute income. Tax those with larger incomes and help those in need. Transfer payments.

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The Role of Government in a Market Economy

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  1. The Role of Government in a Market Economy

  2. 1. Provide a legal system • Make and enforce laws and to protect private property rights.

  3. 2. Maintain competition • Regulate monopolies.

  4. 3. Redistribute income • Tax those with larger incomes and help those in need. • Transfer payments

  5. 4. Reallocate resource. *Correct market failures *Address externalities ( unintended side effects to a third party uninvolved in the activity/AKA spillover costs and benefits). *Public v. private goods

  6. 5. Stabilize the economy • Reduce unemployment and inflation and promote economic growth. • Fiscal (tax/spend) and monetary(money supply) policy

  7. Fiscal Federalism • State and local governments have seen tax revenue dip • Shortfalls often covered by grants or transfers from Federal govt • DEFINITION: system of intergovernmental transfers

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