The term “public sector” refers to federal, state, and local government units. Here we want to examine the economic functions carried out by the public sector units. We also want to describe government expenditures and receipts

3 Enact and enforce laws governing product and factor market transactions. 3 Enact and enforce laws to protect the environment, ensure workplace and product safety, truth in advertising, and provide other social regulation. 3 Contract enforcement The public sector must establish and enforce the “rules of the game.”

Europe’s Software Piracy Rankings, 1994 Source: Business Software Alliance

3 Enforcement of antitrust statutes (such as the Sherman Act). 3 Regulation of telephone, electricity, natural gas, or cable TV rates. The Justice Department’s prosecution of Microsoft is an example of antitrust enforcement.

The market can’t be trusted to produce an equitable, or in any case, politically acceptable distribution of income Income redistribution is accomplished by means of transfer payments. These include: Social security payments Aid to the permanently disabled TANF Medicare Medicaid Unemployment compensation

Public goods are generally impossible to withhold from those not willing to pay for them.

+Free riders are those who enjoy the benefits of public goods without paying for them. +Public goods cannot be supplied by profit seekers since there is both opportunity and incentive to free ride. +Fees for boating licenses and property taxes are two ways government can limit free riding.

ã Negative externalities (or spillover costs) result when private production or consumption activity imposes costs on third parties. ã Examples include acid rain, noise and vibration near airports, water pollution, cigarette smoke, mosquitoes in Jonesboro, rice pesticides that damage tomatoes.

How does government correct for externalities? EPA emissions standards for cars pursuant to the Clean Air Act. EPA regulations on sulphur-dioxide emissions from coal-fired power plants. Effluent fees, taxes, and fines imposed on polluters. Restrictions on smoking in public places. Cigarette taxes.

The Employment Act of 1946 makes the Federal government responsible for “promoting maximum production, employment, and purchasing power