1. The Economic Functions of Government

2. `

3. 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.

4. Six Economic Functions of Government
Provide a legal system
Maintain competition
Provide public goods and services
Correct for externalities
Stabilize the economy
Redistribute income

5. Six Economic Functions of Government
Provide a legal system
Define and enforce property rights
Establish a monetary system
Maintain access to information

6. Government Regulates to maintain people’s access to info
Knowledge is Power
When individuals/consumers are not informed many things can happen:
Fewer profits
Lack of competitive wages
Unsafe products, high prices
Government Regulates to maintain people’s access to info
Public Disclosure Laws
Support of the Internet

7. Six Economic Functions of Government
Maintain the legal and social framework
Maintain competition
Create and enforce antitrust laws
Regulate natural monopolies

8. Inadequate Competition
Competition-Sellers compete against each other to attract customers
leads to lower prices
better quality goods/services
better customer service
Monopolies dangerous.
Limited choice
low quality goods/services
higher prices
Inefficient use of resources
Government creates/enforces anti-trust (monopoly) laws to maintain effective levels of competition

9. Six Economic Functions of Government
Maintain the legal and social framework
Maintain competition
Provide public goods and services
Public goods and services are those that markets will not provide in sufficient quantities
Examples: roads, police protection, fire protection, national defense, schools, public libraries, public parks, etc.

10. Six Economic Functions of Government
3. Provide public goods and services
4. Correct for externalities
Unintended side effect of doing business
Side effect that affects an uninvolved 3rd party
Can be positive or negative
Examples:
Pollution, noise near airport, traffic near a shopping center, better roads because of a new sports stadium

11. Externalities Government can manage externalities by using
tax policies
regulations
incentives

12. Six Economic Functions of Government
Maintain the legal and social framework
Maintain competition
Provide public goods and services
Correct for externalities
Stabilize the economy
Reduce unemployment and inflation
Promote economic growth

13. Six Economic Functions of Government
Maintain the legal and social framework
Maintain competition
Provide public goods and services
Correct for externalities
Stabilize the economy
Redistribute income
Redistribute income from people who have higher incomes to those with lower incomes
Examples: Social Security, Medicare/Medicaid, welfare programs

14. Six Economic Functions of Government
Maintain the legal and social framework
Maintain competition
Provide public goods and services
Correct for externalities
Stabilize the economy
Redistribute income

15. Activity Time!

16. Life on a Dismal Lake

17. Time for Another Activity
Economics is soooo dreamy!

18. Classify the Headlines according to the function of government.
Federal Reserve Raises Key Interest Rate ___
Congress Raises tax rates for Top Income Brackets ___
EPA Plan to Reduce CO2 Emissions ___
Homeland Security Funding Increased ___
President Says More Spending Will Fight Recession ___
Agency Blocks merger of Two Airlines ___

19. Classify the Headlines
City Police Increase Neighborhood Patrols ___
Lawsuit Establishes Patent Rights ___
Legislature Passes Funding for Subsidized Housing ___
New Info from Government Agency Helps Consumers Choose Wisely ___
Songwriter Sues Singer: Says Songs Stolen ___
County Funds Free Flu Vaccinations ___

20. Federal Reserve Raises Key Interest Rate
Let’s Check!
Federal Reserve Raises Key Interest Rate
(Stabilize the economy)
Congress Raises tax rates for Top Income Brackets (Redistribution of income)
EPA Plan to Reduce CO2 Emissions
(Correcting externalities)
Homeland Security Funding Increased
(Providing public goods/services)
President Says More Spending Will Fight Recession (Stabilize the economy)
Agency Blocks merger of Two Airlines (maintain competition)

21. County Funds Free Flu Vaccinations providing public goods/services
Let’s Check!
City Police Increase Neighborhood Patrols (providing public goods/services)
Lawsuit Establishes Patent Rights (maintaining a social/legal framework)
Legislature Passes Funding for Subsidized Housing (redistribution of income)
New Info from Government Agency Helps Consumers Choose Wisely (maintaining legal and social framework)
Songwriter Sues Singer: Says Songs Stolen (maintaining legal and social framework)
County Funds Free Flu Vaccinations providing public goods/services 21

22. Regulation Examples
Government regulation is typically a legal restriction or requirement by the
government on the way a good or service is produced, allocated, or priced.
There are literally thousands of examples.
Some of the more common regulations include minimum wage, health standards for hotels/restaurants, hiring/firing practices of companies, the way pollution andwaste is dealt with, safety requirements for consumer products, requirements to post information about food for restaurants, etc.
Some services like water, electricity, communications, travel, etc are heavily regulated to make these goods available to the widest number of people possible.
Regulations affect consumers AND producers.
Producers are affected mainly because regulations increase the cost of doing business.

23. Regulation Examples
Resources that could be used to produce a good or service instead must be reallocated to meeting the regulation (with time often being one of the biggest resources needed for this).
For consumers, the effects of regulations are a bit mixed.
The increased cost of doing business on the producer likely means increased prices for the consumer.

24. Regulation Examples
However, some regulations are actually desirable for the consumer like health inspections of restaurants, minimum safety requirements for automobiles, requirement for licenses to be a doctor or lawyer or teacher, etc.

25. Deregulation Examples
Government de-regulation is the reduction by a government of its interventional role in the functioning of the economy.
This allows greater freedom to all the players in the marketplace to operate.
The rationale for deregulation is that fewer and simpler rules will raise the level of competition, generate higher productivity, more efficiency and lower prices.

26. Deregulation Example
However, too much deregulation could lead to compromising quality standards, financial uncertainty, and the creation of monopolies.
Government deregulation has happened in industries including trucking, communications, banking, and airlines.
For the most part, these de-regulated industries have seen more competition, easier market entry, and more competitive consumer prices (though not always).
Some critics argue, however, that these industries have taken on unnecessary risk (especially in banking) and actually raised prices for some basic consumer services.

27. Assessment

28. Assessment Public goods and services are
All goods and services paid for by the government
Goods and services provided by publicly held companies
Goods and services that would not be adequately provided by the market.
Goods and services that are available to the public.

29. Assessment
Establishing and enforcing clearly defined property rights is an example of government
Providing a social and legal framework.
Maintaining competition
Providing public goods and services
Redistributing income

30. Assessment
Smoke from a factory drops ash all over your car. Government’s economic function in this case is to:
Stabilize the economy
Maintain competition
Provide public goods and services
Correct a negative externality.

31. Assessment
The Federal trade Commission recommends that the Smokin’ Hot Computer Corporation be broken into several smaller, independent companies. This is an example of the government’s function of:
Maintaining competition
Redistributing Income
Maintaining the Legal and Social framework
Providing public goods and services

32. Assessment
The fed announced today that it will cut a key interest rate by two basis points. This is an example of the government’s function to
Correct for externalities
Stabilize the economy
Redistribute income
Maintain the legal and social framework

33. Assessment: Extended Response
Federal regulations now require Internet radio stations to pay substantial royalty fees (fees to artists and songwriters) for the music they play. Some stations were not able to pay the fees and have gone “off the air.” What economic function of government is this an example of? Who benefits from the regulation? How? Why? Who loses because of the regulation? How? Why? What argument would you make for and against the regulation?

34. Assessment Check
Please trade papers with someone outside your team.

35. Assessment Check Public goods and services are
All goods and services paid for by the government
Goods and services provided by publicly held companies
Goods and services that would not be adequately provided by the market.
Goods and services that are available to the public.

36. Assessment Check
Establishing and enforcing clearly defined property rights is an example of government
Providing a social and legal framework.
Maintaining competition
Providing public goods and services
Redistributing income

37. Assessment Check
Smoke from a factory drops ash all over your car. Government’s economic function in this case is to:
Stabilize the economy
Maintain competition
Provide public goods and services
Correct a negative externality.

38. Assessment Check
The Federal trade Commission recommends that the Smokin’ Hot Computer Corporation be broken into several smaller, independent companies. This is an example of the government’s function of:
Maintaining competition
Redistributing Income
Maintaining the Legal and Social framework
Providing public goods and services

39. Assessment Check
The fed announced today that it will cut a key interest rate by two basis points. This is an example of the government’s function to
Correct for externalities
Stabilize the economy
Redistribute income
Maintain the legal and social framework

40. Assessment Check
Federal regulations now require Internet radio stations to pay substantial royalty fees (fees to artists and songwriters) for the music they play. Some stations were not able to pay the fees and have gone “off the air.” What economic function of government is this an example of? Who benefits from the regulation? How? Why? Who loses because of the regulation? How? Why? What argument would you make for and against the regulation?

41. Assessment Check
These regulations are an example of government policy aimed at establishing and enforcing property rights. The protection of property rights is an element of the legal and social framework government establishes. In this case, singers and songwriters benefit from the legal protection in question; the regulation maintains their property rights and their incentive to produce music. Radio station operators and listeners lose, because there are fewer Internet radio stations and less choice for listeners.

42. Homework
Many city governments subsidize the construction of sports stadiums as a way to attract or hold on to sports teams.
First, write an argument for this practice, using the economic functions of government to support your claim. Then present an alternative view, arguing against your initial claim.