1. Government Failure Inefficiency in the Public Sector -Denny Boling

2. Inefficiency form Taxation Income Tax –Federal Individual Income Tax Progressive Tax (tax rate increases as taxable income increases) –Federal Payroll Tax for Social Security Regressive Tax (tax rate decreases as taxable income increases) –Decrease Incentive to Work

3. Inefficiency losses from Government Spending Agricultural Price Supports –Government programs to keep the price of certain commodities above the equilibrium level. –Farmers produce too much of those commodities.

4. The Effect of Agricultural Price Supports S, MC D, MB Price Per unit of Supported Commodity Quantity of Supported Commodity PSPS QeQe PePe QSQS e m s

5. Government-Subsidized Medical Care –Medicare Healthcare for the elderly Govt. pays ≈ 85% of total cost –Medicaid Healthcare for the poor Govt. pays 100% of total cost Inefficiency losses from Government Spending Cont.

6. The Effect of Government Subsidized Healthcare S, MC D, MB Price Per unit ($) Quantity (Q) QeQe PePe QCQC e m s Governments Price Consumers Price PCPC

7. Inefficiency losses from Government Policy Rent Control –The government sets an upper limit on the rent landlords can charge. –Landlords supply less rental space.

8. The Effect of Rent Control Policy S, MC D, MB Price Per Month ($) Quantity of Rental Units PcPc QeQe PePe QSQS e m c

9. Inefficiency losses from Government Policy Cont. Minimum Wage –The government sets a lower limit on the price of labor. –Firms hire less workers.

10. The Effect of Minimum Wage Policy S, MC D, MB Price of labor (W/hr.) Number of Workers WmWm NeNe WeWe NmNm e m c