1. Government and the Economy
Economics
Chapter 11

2. In class today: CBM #5 (Chapters 11 and 12) Score and graph it
Get out your charts that you filled in last class after the Unit II test (Chapter 11: Govt and the Economy)
Check your answers from the power point, fill in remaining info to complete them
In class activity – Analyze political cartoons placards A-G, use 1 Role of Govt from your chart for each Placard analysis!

3. Economic powers of the US Government
Article 1: US Constitution gives government the following powers:
To levy and collect taxes
Provide for the general welfare
Borrow money
Regulate interstate and foreign commerce
Establish bankruptcy laws
Coin money and regulate value
Fix the standards of weights and measures
Protect inventors and authors works
Exercising these powers is called regulation

4. Protecting Property Rights
What is Private Property?
Land
Personal possessions
Physical Assets
Intellectual Property
Protecting private property = key to free enterprise, because incentives (to own and develop) matter
Examples: Courts, Police, Patent and Trademark Office
Protecting property rights is essential for free enterprise
Why??? Because incentive matter
Private ownership encourages people to take care of their property – fix leaks to raise property value
Private ownership encourages people to put their property to productive use – plant crops that will grow in your specific region – wouldn’t plant banana in VA
Private ownership encourages people to develop property in ways that benefit others – build a health club on your property to help community be more healthy

5. Eminent Domain
An EXCEPTION to property rights = Eminent domain: Government right to seize property for public use
Must fairly compensate owner
5th Amendment – guarantee due process and just compensation
Kelso v. City of New London
Supreme Court agreed that City of New London could seize property for economic development
Eminent Domain – property often seized to build schools, roads, community centers
Kelso – New London wanted to seize rundown area and give to economic developers for economic revitalization
Supreme Court agreed that fixing up run down area was for the good of the public
5th Amendment – Takings Clause – added fair compensation to due process

6. Maintaining Competition
Government prohibits practices that:
Restrict competition in the marketplace
Price fixing
Bid rigging
Market division
Form monopolies
Government also monitors mergers (joining of 2 firms into 1)
Examples: Justice Department & Regulatory Agencies
Helps markets work efficiently
Competition forces producers to use resources efficiently – develop new and better products
Illegal:
Price fixing – competitors agree on a price – often higher than the market will bear – every producer wins
Bid rigging – producers agree on who will submit the lowest bid – often higher than market will bear – take turns submitting lowest bid
Market division – producers agree to split up market in their best interests
Mergers – two companies joining to form one – XM SIRIUS recently

7. Protecting Consumers, Savers, and Investors
Caveat Emptor – “Buyer beware”
Government provides information about products and ensures goods and services are safe
Examples:
Consumer Product Safety Commission
FDIC
FDA

8. Protecting Workers Safeguard the interests of workers
Protect physical well-being
Examples:
Department of Labor
OSHA
Occupational Safety and Health Administration – protects workers physical well-being
Regulation regarding everything from working conditions standards for tools
Minimum Wage???

9. Addressing Externalities
Positive or negative spillover effects from production or consumption
Govt can support positive externalities
Examples
providing for education
Immunization programs
Limit negative externalities
EPA policies to control pollution
Incentives
Tolls, taxes, quotas

10. Providing Public Goods
Providing goods and services to the community for free
Examples
National defense
Street lights
Highways, dams, bridges

11. Promoting Economic Stability
After the stock market crash of 1929, the US government has played an increasing role in regulating the economy to prevent booms and busts
Examples:
Maintaining dollar value
Stimulating business activity (incentives, stimulus)

12. Redistributing Income
US Census Bureau charts the distribution of income in the US
Also calculates the poverty rate = % of households below poverty threshold
Examples of income redistribution:
Welfare payments, food stamps, public housing, school lunches, Medicaid

13. Is Regulation Always Good?
Over regulation – detail make doing business unmanageable
Regulation needs to balance costs & benefits
Examples???

14. Deregulation Removes restrictions on economic activity
Banking
Airlines
Cable TV
Electricity
Trucking
Industry becomes more competitive
Weaker companies fail or merge
Strong companies survive

15. Class Activity Using your chart of Role of Government in the Economy
In pairs, study and rotate placards A-G
Fill in handout “Analyzing Political Cartoons About the Role of Government”
Each Placard represents ONE of the 8 Roles on your chart. Use each one only ONCE!