Government and Free Enterprise Unit 3.3

Providing Public Goods Goods and services provided by government funded by taxes People who do not pay cannot be excluded Use of the goods by one person does not diminish it for anyone else (street lights) Free Riders People who choose not to pay for a service, but benefit anyway Business will not provide public goods because they cannot force people to pay for it Market Failure When people are not a part of a transaction, but either benefit from it or pay the costs, then there is a market failure Shared Responsibilities Some goods and services cross the public/private boundary, such as roads Infrastructure

Managing Externalities Externality Externalities are when transactions take place and a third party who has not consented is also affected Negative Externality Costs of pollution or other negative activities that can cause health problems, financial hardship Positive Externality Benefits accrue even though you are not involved (unions and benefits/pay) Subsidy

Public Transfer Payments Safety Net Government programs designed to help people with economic hardships Redistributing Income Transfer Payment A transaction without a return (a gift) Public Transfer Payment Government transfers monies from taxpayers to recipient s who do not provide any goods in return Transfers to reduce poverty (Medicaid, welfare, foods stamps) Large transfers (subsidies) also go to large corporations, even when they pay no taxes