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.

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.

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

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

Maintain Competition Regulates monopolies Examples Anti-trust laws

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

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

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

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

Deregulation, regulation, and effects Interstate Commerce Commission (ICC) All new entrants must have licenses Motor Carrier Act of 1980 deregulated Number of carriers doubled in 4 years IBM – broken apart through regulation Allowed smaller companies to flourish and gain in the computer industry