1. ROLE OF GOVERNMENT IN A MARKET ECONOMY

2. 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.

3. When should the government get involved in the economy? 3 Worker Safety Laws Barber Shop Licenses Every society needs to decide how much government involvement is desirable Bank Bailouts

4. Market Economy  Characteristics include: 1. Profit Motive: incentive that drives individuals and business owners to improve their material well-being 2. Legal Equality: principle that everyone has the same legal rights 3. Private Property Rights: property can be used in any way private individuals or groups want, so long as they obey the law 4. Voluntary Exchange

5. Market Economy  What role to consumers play in the system?  Through voluntary exchange, consumers inform businesses what and how much to produce.  What is the role of the government in the system?  Secure property rights  Protect consumers from dangerous products  Promotes the health, safety, and well-being of all people

6. Does the Free Market ever FAIL to meet society’s needs and act in the public interest? Public interest is the good of society as a whole…you, me and everybody 6 Copyright ACDC Leadership 2015

7. What is a Market Failure? Market Failure- A situation in which the free-market system fails to satisfy society’s wants. (When the invisible hand doesn’t work.) Private markets do not efficiently bring about the allocation of resources. What’s the result… The government must step in to satisfy society’s wants. 7

8. The Four Market Failures We will focus on four different market failures: 1.Public Goods 2. Externalities (third person side effects) 3. Monopolies – one company ‘owns the industry’ 4. Unfair distribution of income – taxes redistribute income to the poor In each of the above situations, the governments step in to allocate resources efficiently. 8 Copyright ACDC Leadership 2015

9. If there was no government, how would schools, parks, and freeways be different? Would there be enough to meet our needs? Public Sector- part of the economy that includes transactions by the government Private Sector- part of the economy that includes transactions of private individuals and companies that seek profit. Public Goods 9

10. DEFINITIONS  Private good – good or service that can be withheld from a consumer who refuses to pay (exclusion), and whose consumption by one person reduces availability to someone else.  Public good – a good or service that cannot be withheld from a consumer who refuses to pay for the good or service (non-exclusion), and whose consumption by one person does not reduce its availability to others (shared consumption).

11. Characteristics of Public Goods 1. Shared (non-rival) consumption – many people receive the benefits of a good or service at one time. Police and Fire protection 2. Non-exclusion – people cannot be prevented from using a good or service even if they did not pay for it. City Park

12. Providing Public Goods  Characteristics  Available to everyone (roads, bridges, damns, defense, etc.)  Paid through taxes  Usable without taking benefit away from another  Public Goods as Examples of Market Failure  Roads are not widely available as a profitable product; if roads were all privatized, there would be very few in areas with a low population because there is little opportunity for profit.

13. Why must the government provide public goods and services? It is impractical for the free-market to provide these goods because there is little opportunity to earn profit. This is due to the Free-Rider Problem Free Riders are individuals that benefit without paying. Public Goods Copyright ACDC Leadership 2015

14. What’s wrong with this picture? 14

15. The Free Rider Problem Examples: 1.People who download music illegally 2.People who watch a street performer and don’t pay 3.Teenagers that live at home and don’t have a job

16. 16 Canadian Military Spending: $21.8 Billion US Military Spending: $660 Billion Why doesn’t Canada spend more on their military? Does anyone free ride off you?

17. Free-Riders keep firms from making profits. If left to the free market, essential services would be under produced. To solve the problem, the government can: 1. Find new ways to punish free-riders. 2. Use tax dollars to provide the service to everyone. What’s wrong with Free Riders? 17 Copyright ACDC Leadership 2015

18. EXTERNALITY  Externality : generates benefits or costs to someone other than the person deciding how much to produce or consume

19. Positive or Negative Externalities? 19

20. PUBLIC OR PRIVATE 1. Ice cream 2. National weather service 3. Library 4. Potato chips 5. Movie 6. Zaxbys 7. Mosquito control 8. Personal computer 9. Fireworks on July 4 th

21. Review 1.List 4 characteristics of the Free Market. 2.What is the “invisible hand”? 3.Define Market Failure. 4.Why must the government provide public goods? 5.Define Free Rider. 6.What is wrong with having free riders? 7.List 5 streets in Augusta. 21