Ch. 3: American Free Enterprise Part 2 Providing Public Goods & Providing a Safety Net Describe the roles of government in a market economy. Describe the roles of government in a market economy. (income redistribution, property rights, market failures, government regulations/derugulation, effects on standard of living)

What are the 3 basic economic ?s for all economic systems? Now we will look at how the American system answers these questions.

Why does govt. provide public Public Goods & Services? PUBLIC GOOD: A shared good or service for which it would be impractical to make consumers pay individually and to exclude nonpayers PUBLIC GOOD: A shared good or service for which it would be impractical to make consumers pay individually and to exclude nonpayers –Benefit to individual is less than cost per individual –Total benefit to society is greater than cost

Public Goods (cont) Public Sector Public Sector –part of the economy that involves transactions of the government Private Sector Private Sector –part of the economy that involves transactions of individuals and businesses

Why does govt try to resolve Market Failures? Market Failures: Not distributing resources efficiently Market Failures: Not distributing resources efficiently –Like the Free-Rider Problem Free-rider: Someone who would not pay for a good/service but would still benefit Free-rider: Someone who would not pay for a good/service but would still benefit

Market Failures (cont) Externality: A (positive or negative) side effect of a good or service to someone other than the person making or consuming it. Externality: A (positive or negative) side effect of a good or service to someone other than the person making or consuming it. Examples: Retention Pond goes stagnant and owner spends money to remove it. (Positive Externality) Retention Pond goes stagnant and owner spends money to remove it. (Positive Externality) New Highway is put in behind your house. (Negative Externality) New Highway is put in behind your house. (Negative Externality)

Explain this cartoon-graph.

How does govt. provide a Safety Net? Why is Poverty a Problem in a free market? In a free market, wealth spreads unevenly some will be poor. Why is Poverty a Problem in a free market? In a free market, wealth spreads unevenly some will be poor. Poverty Threshold (Poverty Line) Poverty Threshold (Poverty Line) Minimum amount of $$ needed to survive. Poverty Threshold 2010 Tax Rates 2011

How does govt. handle poverty? Welfare System – Government aid to the poor Welfare System – Government aid to the poor –Started in 1930’s during the Great Depression by FDR –Many criticize and say it creates a dependency

5 examples of Redistribution Programs 1. Cash Transfers: A.Temporary Assistance for Needy Families (TANF): A short term program that eventually stops giving benefits. B.Social Security C.Unemployment Insurance D.Workers’ Compensation

Redistribution Programs (cont) 2. In-Kind Benefits: Goods or services for free or at greatly reduced cost A.Food Stamps B.Subsidized Housing C.Legal Aid 3. Medical Benefits: A.Medicare: over 65 or disabled B.Medicaid: poor who are unemployed or not covered by their work

Redistribution Programs (cont) 4. Education: Money for School or College 5. Faith Based Initiatives: –Started by George W. Bush –Instead of Government using/giving money to the poor, the Government gives money to religious organizations and they use/give it to the poor.

Review… How is something labeled a “public good”? How is something labeled a “public good”? What is a market failure and how is this “bad”? What is a market failure and how is this “bad”? List ways the government provides a safety net for us in America. List ways the government provides a safety net for us in America. If America is one of the richest countries in the world, why do we have poverty? If America is one of the richest countries in the world, why do we have poverty?