1. 3.3 notes The role of gov’t in the economy

2. Public Goods Provided by gov’t, used by everyone Funded by taxes Examples – street lights, national defense 2 characteristics: 1. can’t exclude anyone and 2. one person’s use doesn’t reduce usefulness to someone else

3. Market Failure Can happen when people benefit or are hurt by something they are not part of They are called positive externalities or negative externalities Example: free rider that watches fireworks (positive) or pollution in air, water (negative)

4. Cont’d We want to SPREAD positive externalities, sometimes through subsidies Example: flu shots for free We want to SLOW DOWN or STOP negative externalities Example: taxing companies that pollute

5. Gov’t also… Provides safety nets for people that may to too old or sick Examples: Medicare, Medicaid, Social Security, unemployment insurance http://www.cnn.com/2014/02/06/politics/un employment- insurance/index.html?hpt=po_c2 http://www.cnn.com/2014/02/06/politics/un employment- insurance/index.html?hpt=po_c2