American Free Enterprise

Public vs. Private Sector Public: the part of the economy that involves the transactions of the government Private: the part of the economy that involves transactions of individuals and businesses.

Public Good A shared good or service for which it would be inefficient or impractical to: ◦1. make consumers pay individually  Examples: ◦ Dams ◦ Roads ◦ Etc…

Public Good Goods and services consumed collectively, provided by government because market has failed to provide them. Sometimes beneficial: ◦Police ◦National Defense ◦Public Education

Free Rider Someone who does not choose to pay for a certain good or service Receives benefits of it anyway As if it were provided as a public good

Market Failure Situation when market fails to function properly Due to: Inadequate competition Buyers and sellers not well informed Resources not distributed well Prices don’t equal costs of production

Externalities What is an externality? ◦An economic side effect of a good or service ◦Affects uninvolved third party ◦Market failures!

Positive vs. Negative Positive: beneficial side effect that affects uninvolved third party Negative: harmful side effect that affects uninvolved third party

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Externalities of building a dam and creating a reservoir: Partner up – come up with positive and negative!

Positive vs. Negative Externalities of building a dam and creating a lake ◦Positive  Swimming  Boating  Fishing  Lakefront views ◦Negative  Loss of wildlife habitat due to flooding above the dam  Disruption of fish migration along the river  Overcrowding due to tourism  Noise from boats

Positive vs. Negative Scenario #1 ◦A city has a shortage of parking spaces near downtown businesses. Should the city build a new parking garage or leave it to the private sector?  Are there any externalities?  What is your solution?

Positive vs. Negative Scenario #2 ◦Due to recent growth the Treasure Valley has once again boomed and is now faced with a power shortage. Should they build a nuclear plant?  What is your solution?  Externalities of building a nuclear power plant?  Externalities of your solution?

Positive vs. Negative Scenario #3 The city dump is filled to capacity, thus Ada County has proposed a new land fill adjacent to your property? ◦What is your solution? ◦Externalities?

Macroeconomics Macro Means? ◦Large Study of the behavior and decision making of entire economies Study of major trends of the economy

Microeconomics Micro Means? ◦Small Study of the economics behavior and decision making of small units, such as individuals, families, and businesses.

GDP Gross Domestic Product: ◦The total value of all final goods and services produced in an economy within a given year. ◦Used to predict business cycles

GDP Only final product included Effects of inflation taken out U.S. economy, as measured by GDP, is everything produced by all the people and all companies in the U.S.

GDP Gross Domestic Product: a.NX – Net Exports b.G – Government c.I – Investment d.C - Consumption