1.   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. EXTERNALITIES

2. Externality When one person’s actions imposes a cost or benefit on the well-being of a bystander. Externalities usually result in market failure.

3. 1) 1)Positive Externality: an external benefit is imposed on someone. (examples: gardens, restored historic buildings, research) 2) Negative Externality: an external cost is imposed on someone. (examples: exhaust from autos, barking dogs, noise from airplanes)

4.  Inefficient allocation  Externalities cause markets to allocate resources inefficiently  By:  CONSUMPTION: consuming a good results in externality.  PRODUCTION: producing a good results in externality.  an external cost = market overproduces the good (ie, paint).  An external benefit = market under produces the good (ie, gardens)

5. Are there benefits for other people in the parking lot when someone puts their car alarm on?

6. ANSWER:, Yes, because thieves don’t know which cars have alarms. What about the club? Are there benefits for other people in the parking lot when someone puts the club on their car?

7. ANSWER: No...because the thief can SEE the club.

8. Your neighbor puts in a nice garden. Are you receiving a benefit?

9. When you admit you are receiving a positive benefit, your neighbor asks you to pay him $100 a month for the benefit. When you say no, he puts up a fence.

10. What if you lived next door to this? Do you receive a benefit?

11. PROPERTY RIGHTS is the issue? Who owns the air? The rivers? The parks?

12. If we can figure out who pollutes the stream, we punish the offender because we are not sure who owns the stream, but we DO know who pollutes it. We get into trouble when we use this criteria regarding the air.

13. What is the difference between a public good and a private good? Exclusion vs. non-exclusion and Shared consumption (rival good) vs. non-shared consumption (non-rival good)

14. What defines property rights? Property rights are established by formal and informal rules about the privileges and limitations on the ownership, use, and transfer of goods and resources. These rights are specified in various municipal ordinances, other legislation, court decisions (common law), tradition and custom.

15. Property rights need to be: 1) clearly defined 2) exclusive 3) enforceable 4) transferable

16. What is a free-rider? Someone who uses the good but doesn’t pay for it. Free riders occur when there are nonexclusion and shared consumption. Spraying for mosquitoes Police & fire protection National defense Street lights

17. So... Your neighbor plants a garden and it is beautiful. But 5 years later, the garden has grown and you can no longer see the lake. Do you have a right to your view?

18. If your cat is in your neighbor’s yard, is it your neighbor’s cat? What if your cat kills a bird in your neighbor’s yard?

19. Externalities Positive (+benefit) Negative (+cost) Production (honey) Consumption (education) Consumption (cigarettes) Production (pollution) In review: