1. © 2001 by Prentice Hall, Inc. ECONOMICS: PRINCIPLES IN ACTION C H A P T E R 3 AMERICAN FREE ENTERPRISE

2. SECTION 3Providing Public Goods SECTION 4Providing a Safety Net EQ: HOW DOES THE PUBLIC SECTOR AND THE PRIVATE SECTOR INTERACT TO MAINTAIN A STABLE, EFFICIENT, AND GROWING ECONOMY?

3. S E C T I O N 3 PROVIDING PUBLIC GOODS What is a market failure? What are public goods? How does government manage externalities? EQ: HOW DOES THE PUBLIC SECTOR AND THE PRIVATE SECTOR INTERACT TO MAINTAIN A STABLE, EFFICIENT, AND GROWING ECONOMY?

4. MARKET FAILURES A market failure is a situation in which the market, on its own, does not distribute resources efficiently. Would the free market ensure that roads are built everywhere they are needed? It’s doubtful. Neither could individuals afford to pay for a freeway. EQ: HOW DOES THE PUBLIC SECTOR AND THE PRIVATE SECTOR INTERACT TO MAINTAIN A STABLE, EFFICIENT, AND GROWING ECONOMY?

5. PUBLIC GOODS Public goods are funded by the public sector, the part of the economy that involves transactions of the government. A free rider is someone who would not choose to pay for a certain good or service, but who would get the benefits of it anyway if it is provided as a public good. A public good is a shared good or service for which it would be impractical to make consumers pay individually and to exclude nonpayers. EQ: HOW DOES THE PUBLIC SECTOR AND THE PRIVATE SECTOR INTERACT TO MAINTAIN A STABLE, EFFICIENT, AND GROWING ECONOMY?

6. EXTERNALITIES An externality is an economic side effect of a good or service that generates benefits or costs to someone other than the person deciding how much to produce or consume. EQ: HOW DOES THE PUBLIC SECTOR AND THE PRIVATE SECTOR INTERACT TO MAINTAIN A STABLE, EFFICIENT, AND GROWING ECONOMY?

7. SECTION 3 REVIEW 1. Which of the following is an example of the public sector of the economy?  (a) consumers purchasing goods from a private company  (b) laborers working for a private construction company  (c) government funding for a new national park  (d) individual donations to charity 2. What is government's role in controlling externalities in the American economy?  (a) Government tries to encourage positive externalities and limit negative externalities.  (b) Government tries to limit all externalities because they represent market failure.  (c) Government tries to limit positive externalities and encourage negative externalities.  (d) Government tries to encourage all externalities so that the market will be competitive. EQ: HOW DOES THE PUBLIC SECTOR AND THE PRIVATE SECTOR INTERACT TO MAINTAIN A STABLE, EFFICIENT, AND GROWING ECONOMY?

8. S E C T I O N 4 PROVIDING A SAFETY NET What role does the government play in fighting poverty? What government programs attempt to aid those facing poverty? EQ: HOW DOES THE PUBLIC SECTOR AND THE PRIVATE SECTOR INTERACT TO MAINTAIN A STABLE, EFFICIENT, AND GROWING ECONOMY?

9. THE POVERTY PROBLEM The poverty threshold is an income level below that which is needed to support families or households. Welfare is a general term that refers to government aid to the poor. The poverty threshold is determined by the federal government and is adjusted periodically. EQ: HOW DOES THE PUBLIC SECTOR AND THE PRIVATE SECTOR INTERACT TO MAINTAIN A STABLE, EFFICIENT, AND GROWING ECONOMY?

10. REDISTRIBUTION PROGRAMS Cash transfers are direct payments of money to eligible people. EQ: HOW DOES THE PUBLIC SECTOR AND THE PRIVATE SECTOR INTERACT TO MAINTAIN A STABLE, EFFICIENT, AND GROWING ECONOMY?

11. OTHER REDISTRIBUTION PROGRAMS Besides cash transfers, other redistribution programs include:  In-kind benefits  In-kind benefits are goods and services provided by the government for free or at greatly reduced prices.  Medical benefits  Health insurance is provided by the government for the elderly and disabled (Medicare) and for poor people who are unemployed or are not covered by their employer’s insurance (Medicaid).  Education benefits  Federal, state, and local governments all provide educational opportunities for the poor. EQ: HOW DOES THE PUBLIC SECTOR AND THE PRIVATE SECTOR INTERACT TO MAINTAIN A STABLE, EFFICIENT, AND GROWING ECONOMY?

12. 3. GOVERNMENT PROVIDES SAFETY NETS Transfer payments (remember Robin Hood?)  Directly as cash or “in-kind” benefits (receiving goods and services directly such as housing, food, health care) We will discuss types of safety nets… EQ: HOW DOES THE PUBLIC SECTOR AND THE PRIVATE SECTOR INTERACT TO MAINTAIN A STABLE, EFFICIENT, AND GROWING ECONOMY?

13. FOR POVERTY What’s poverty? Who is impoverished? EQ: HOW DOES THE PUBLIC SECTOR AND THE PRIVATE SECTOR INTERACT TO MAINTAIN A STABLE, EFFICIENT, AND GROWING ECONOMY? Persons in Household 2014 Federal Poverty Level (100% FPL) 1$11,670 2$15,730 3$19,790 4$23,850 5$27,910 6$31,970 7$36,030 8$40,090

14. POVERTY PROGRAMS Section 8 housing (HUD) “subsidized” Food stamps Free/reduced school lunch Low-income home energy assistance program Head Start EQ: HOW DOES THE PUBLIC SECTOR AND THE PRIVATE SECTOR INTERACT TO MAINTAIN A STABLE, EFFICIENT, AND GROWING ECONOMY? TANF (Temporary Assistance for Needy Families)  Work requirement “workfare”--W to W (welfare to work)  Time limit (5 yr. lifetime limit)  Since 1996, designed to be temporary & transitional

15. FOR MEDICAL CARE Medicaid—health insurance for low income people administered by states Medicare—health insurance for seniors (part of Social Security Administration)  Remember: “aid” to the poor, “care” for the elderly  Children’s Health Insurance Program—(SCHIP) covers children who don’t qualify under Medicaid. EQ: HOW DOES THE PUBLIC SECTOR AND THE PRIVATE SECTOR INTERACT TO MAINTAIN A STABLE, EFFICIENT, AND GROWING ECONOMY?

16. FOR INCOME/EMPLOYMENT Unemployment insurance—temporary income benefit for those laid-off or unable to find a job (26 weeks, $405/week max.) Minimum Wage Laws (federal and state)  Federal = $7.25  CA = $8.00 currently EQ: HOW DOES THE PUBLIC SECTOR AND THE PRIVATE SECTOR INTERACT TO MAINTAIN A STABLE, EFFICIENT, AND GROWING ECONOMY?

17. FOR DISABILITY Supplemental Security Income (SSI)  Part of SSA, but not funded by payroll tax  Provides income to people who cannot work due to physical or mental disability or blindness. EQ: HOW DOES THE PUBLIC SECTOR AND THE PRIVATE SECTOR INTERACT TO MAINTAIN A STABLE, EFFICIENT, AND GROWING ECONOMY?

18. FOR CATASTROPHE FEMA (Federal Emergency Management Agency) disaster relief, medical care, food, shelter, low-interest loans to individuals and businesses. EQ: HOW DOES THE PUBLIC SECTOR AND THE PRIVATE SECTOR INTERACT TO MAINTAIN A STABLE, EFFICIENT, AND GROWING ECONOMY?

19. FOR CATASTROPHE FEMA (Federal Emergency Management Agency) disaster relief, medical care, food, shelter, low-interest loans to individuals and businesses. EQ: HOW DOES THE PUBLIC SECTOR AND THE PRIVATE SECTOR INTERACT TO MAINTAIN A STABLE, EFFICIENT, AND GROWING ECONOMY?

20. ASSIGNMENT Page 70 #1-6

21. SECTION REVIEW 1. Welfare includes all of the following EXCEPT  (a) Temporary Assistance to Needy Families.  (b) Occupational Safety and Health Administration.  (c) Social Security.  (d) Medicaid. 2. Education programs make the economy more productive by  (a) adding to human capital and labor productivity.  (b) reducing taxes.  (c) providing more jobs in manufacturing.  (d) reducing injuries on the job.