1. THE ROLE OF GOVERNMENT IN A MARKET ECONOMY
Economics in Action
NCEE
National Council on Economic Education

2. Visual 5.1 The Role of Government in a Market Economy
Provide a legal system
Provide public goods
Correct market failures
Maintain competition
Redistribute income
Stabilize the economy

3. Visual 5.2 Economics Quiz with Answers
Who wrote: “In this world nothing is certain but death and taxes”?
Benjamin Franklin
Who was the author of The Wealth of Nations?
Adam Smith

4. Visual 5.2 Economics Quiz with Answers
Who wrote The General Theory of Employment, Interest, and Money?
John Maynard Keynes
What does TNSTAAFL stand for?
There’s no such thing as a free lunch

5. Visual 5.3 Public Goods
Most goods and services are private goods and services
A hamburger is a private good
National defense is a public good

6. Visual 5.3 Public Goods
Public goods differ from private goods because they have these characteristics:
Shared consumption
Nonexclusion
Because people can consume public goods without paying for them, private businesses do not have incentives to produce enough public goods.

7. Visual 5.4 Externalities
Market prices usually reflect the costs producers pay to produce goods and the benefits consumers receive.
A kind of market failure happens when market prices fail to reflect all the cost and benefits involved.
This is called an externality problem

8. Visual 5.4 Externalities
Externality: When some of the costs or benefits are paid for by people who do not produce or pay for the product
Positive Externality: Benefits enjoyed by someone who did not produce or pay for the product
Negative Externality: Costs paid by someone who did not produce or pay for the product.

9. Life on Dismal Lake The Cast
Mama Smith
Papa Smith
The Twins
Snively Whiplash
15 additional families

10. Life on Dismal Lake Act 1
Is there an externality problem when the children throw the trash in the lake?
How should this problem be solved?

11. Life on Dismal Lake Act II
Is there an externality problem when Whiplash throws garbage into the lake?
How should this problem be solved?

12. Life on Dismal Lake Act III
Is there an externality problem when some unidentified families throw garbage into the lake?
How should this problem be solved?