What do you think the government’s role should be in a free enterprise economy? Why? 2.5 Government Role in A Free Enterprise Economy

Two Main Roles Enforcer of Contracts Enforcer of Contracts Provider of Nonexcludable Public Goods Provider of Nonexcludable Public Goods

Enforcer of Contracts Laws defining the rights and responsibilities of parties to a contract Laws defining the rights and responsibilities of parties to a contract Courts to rule on the case and the law. Courts to rule on the case and the law. Contract: an agreement Experiences?

Goods Private Goods: Private Goods: One’s consumption of that good takes away from another person’s consumption One’s consumption of that good takes away from another person’s consumption Any consumable product…apples, computers, bicycles… Any consumable product…apples, computers, bicycles… Public Goods Public Goods One’s consumption does not take away from another person’s consumption A lecture, a movie, a parade, football game 2 types

Public Goods Excludable Excludable A person can be excluded (prevented) from using that good A person can be excluded (prevented) from using that good You need a ticket to get in; you have to pay tuition to listen to the lecture You need a ticket to get in; you have to pay tuition to listen to the lecture Nonexcludable Nonexcludable A person cannot be excluded from using that good. National defense, lifeguards, some public works projects

Excludable public goods and private goods are supplied for profit. Excludable public goods and private goods are supplied for profit. Since people* cannot be prevented from using a nonexcludable public good, who will supply nonexcludable public goods???? Since people* cannot be prevented from using a nonexcludable public good, who will supply nonexcludable public goods????

*people who consume a nonexcludable public good without paying Free riders

Government Common Forms of Nonexcludable Public Goods Government Common Forms of Nonexcludable Public Goods Public Works Public Works Police Police Armed Forces Armed Forces Fire Protection Fire Protection How does government pay for these? TAXES

Political Discussion How much and what types of nonexcludable public goods? How much and what types of nonexcludable public goods? Higher Taxes? Fewer Taxes? War? Bigger navy? Social Security? New Schools? Health Care? Prisons? More Cops on the Beat? Libraries? Parks? Save The Whales?

Next: Read Chapter 2.6 pages Read Chapter 2.6 pages Complete the hand-out provided. Complete the hand-out provided.