Today’s Warm Up Answer in your notes: Brainstorm jobs the government does. List as many functions of local, state, and federal government as you can.

Gov’t in the Market Although pure market economies referred to as laissez-faire systems, all levels of gov’t in the U.S. affect our economy Mixed Market Which items listed in your warm up relate to the economy?

Provide a Legal System Gov’t makes and enforces laws including those which protect private property rights (intellectual and physical)

Maintain Competition Protects consumers, employees, and the general public (i.e. anti-trust laws, FDA, etc.)

Redistributes Income Taxes those with higher incomes and helps those in need –i.e. social security, unemployment, etc.

Stabilize the Economy Reduces unemployment and inflation Promotes economic growth

Provide Public g/s Includes those g/s private businesses wouldn’t provide –Teachers, public libraries, roads, etc. How do we know which g/s should be private vs. public?

Surprise… POP QUIZ P.S. I will sell you the answers for $1. I will accept an IOU if you don’t have cash with you today. Raise your hand if you’re interested in buying an A on this quiz. First product grade!!!!!!!!!!!!!! Oh, and NO SHARING the answers. Only those who pay $1 will get the answers.

Quiz Questions (…and answers) 1.Who wrote, “In this world nothing is certain but death and taxes”? Answer: Benjamin Franklin 2.Who was the author of The Wealth of Nations? Answer: Adam Smith 3.What does TNSTAAFL stand for? Answer: There’s no such thing as a free lunch.

Public Goods and Services Public g/s are provided by the gov’t through tax dollars Often (but not always) have the following characteristics –Shared consumption – when one person consumes a public g/s, it doesn’t prevent others from also consuming the g/s –Nonexclusion – difficult or impossible to exclude others from consuming the good, even if they didn’t pay for it

Public Goods and Services Creates free rider problem – many people unwilling to pay for public g/s because they know they can consume without paying; private businesses lack incentive to produce such g/s –i.e. national defense

Market Failure: Externalities Occur when market prices fail to reflect all costs & benefits involved; spills over to third parties Positive Externalities – benefits enjoyed by someone who did not produce or pay to consume a product –i.e. elementary education; society as a whole benefits when others can read and write Negative Externalities – costs paid by someone who does not produce or pay to consume a product –i.e. air pollution caused by cigarette smoking

Activity: Life on Dismal Lake Four actors needed for Act I: –Mama Smith –Papa Smith –Smith teenager #1 –Smith teenager #2 Another actor needed for Act II: –Snively Whiplash The rest of you are needed for Act III: –New families at the lake

Market Failure: Externalities People respond predictably to (+) and (-) incentives Positive externalities lead to underproduction; producers lack incentive to produce g/s where people can consume them without paying Negative externalities lead to overproduction; producers have incentive to produce in private sector when costs imposed on others

Government’s Role Economic role for gov’t justified when benefits of gov’t policy outweigh the costs Gov’t intervention can: –Provide public g/s that wouldn’t be provided in efficient amounts in the private sector –Correct for (+) and (-) externalities to improve efficiency

Externalities Poster Come up with one example of a positive externality. Explain how it would lead to underproduction if left to the private sector. Describe how gov’t intervention could correct such a market failure. Come up with one example of a negative externality. Explain how it would lead to overproduction if left to the private sector. Describe how gov’t intervention could correct such a market failure.

Today’s Exit Ticket Answer today’s LEQ!