Topic 3.3 Public Goods

3.3 Providing Public Goods

Objectives
1. Analyze market failures.
2. Identify examples of public goods.
3. Evaluate how the government allocates some resources by managing externalities.

If the government did not build roads, who would? If you wanted a road built in front of your house, would you build it? Would you allow your neighbors to use it? Would they have to pay you?

Market Failure – A situation in which the market does not distribute resources efficiently.

The government decides to intervene when the market fails if the benefits outweigh the negatives.

Public Good – A shared good or service for which it would be impractical to make consumers pay individually and to exclude non-payers.

EX: Dams, Parks.

For the most part, any number of consumers can use a public good without reducing the benefits to any single consumer.
EX: People driving next to you don’t diminish your ability to use a road.

To determine whether something is produced as a public good one must look at the costs and benefits. When a good or service is public…
1. The benefit to each individual is less than the cost that each would have to pay if it were provided privately.
2. The total benefits to society are greater than the total cost.
In these cases the government provides the good, or else it wouldn’t get done.

Public Sector – The part of the economy that involves the transactions of the government

Private Sector – The part of the economy that involves transactions or individuals and businesses.

Free-rider – Some who would not choose to pay for a certain good or service, but who would get the benefits of it anyway if it were provided as a public good.

EX: People who don’t pay taxes or are illegal immigrants benefit from military protection.

Externalities

Externality – 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.

Externalities are split into two categories: positives and negative externalities.

Public goods generate benefits for many people, even those who do not pay. Such beneficial side effects are called positive externalities.

• Examples: A new neighbor moves in next-door to you into an old rundown house. She paints it, cuts the grass and plants a garden; everyone in your neighborhood benefits from the beautiful new house.

• A computer company has an outreach program that trains underprivileged youth to be computer programmers. These teens will then go out and be hired by other companies who will benefit from the skills the already have.

Some decisions produce goods and services that generate unintended costs, called negative externalities.

• Examples: A sawmill pollutes a river that flows past a nearby town. The town has to clean up the pollution and deal with its consequences.

• Your neighbor has late night polka parties, which keep you awake. Plus, you hate polka music.

The government’s goal is to increase positive externalities, like education, and decrease negative externalities, like pollution.

Topic 3.2 Notes Safety Nets

Topic 3.2 Providing a Safety Net

Objectives
1. Summarize the U.S. political debate on ways to fight poverty.
2. Describe the main programs through which the government redistributes income.

In a free market some people are very rich, some are very poor and most are in between. So how do societies care for the old, poor and young?

Poverty Threshold – An income level below that which is needed to support families or households.

The poverty threshold fluctuates and is determined by the government. What can the government do to combat poverty? What should it do? Is government regulation the best way to help the poor?

Welfare – A general term that refers to government aid to the poor.

There are many government redistribution programs to help those in need.

• Social Security

• Unemployment Insurance

• Workers’ Compensation

• Medicare/Medicaid

• Education

Topic 3.1 Free Enterprise Notes

Topic 3 American Free Enterprise

3.1 Preserving Economic Freedoms

Objectives
1. Identify ways that the government acts to protect Americans’ economic rights within our system of free enterprise.
2. List examples of how the government creates policies to serve the public interest.
3. Describe how the government intervenes to protect public health, safety, and well-being.


Public Interest – The concerns of the public as a whole.

Examples of how the government acts in the public’s interest:
• Warning labels on cigarettes
• Safety ratings on cars and MPG estimates
• Nutritional facts on food

The government can address problems the free market might ignore, like toxic substances in food.

Protecting public interest means giving up some economic freedom. Most Americans are willing to make the trade-off between less economic freedom for some government intervention.

Consumers can let their voices be heard by producers and the government in two ways:
1) Through consumers buying decisions
2) Through electing officials

Public Policy – Law and standards on topics of public interest

EX: Should we spend more money on defense or improve housing for the poor?
Should we dam a river to generate power or leave it in its natural state?

Interest Group – A private organization that tries to persuade public officials to act or vote according to group members’ interests.

EX: The National Rifle Association (NRA) resisting stricter gun laws.

Pros
• Collection of individuals is more influential than just one citizen.
• Can bring about change that reflects interest off the entire public.

Cons
• Corporate funded groups outspend citizens
• Powerful groups can bring about change that is not beneficial to all.

In order create economic freedom and give consumers choices, then the public needs to be informed of relevant information.

Public Disclosure Laws – Laws requiring companies to provide full information about their products.

EX: Many times hamburger will have its label the day it was packed, the “best buy” date and preparation instructions.

Major Federal Regulatory Agencies

FDA (Food and Drug Administration) – Sets and enforces standards for food, drugs and cosmetic drugs.

FTC (Federal Trade Commission) – Enacts and enforces antitrust laws to protect consumers.

FCC (Federal Communications Commission) – Regulates interstate and international communications by radio, television, satellite and cable.

FAA (Federal Aviation Administration) – Regulates civil aviation, air-traffic and piloting standards, and air commerce.

EEOC (Equal Employment Opportunity Commission) – Promotes equal job opportunity through enforcement of civil right laws, educations and other programs.

EPA (Environmental Protection Agency) – Enacts policies to protect human health and the natural environment.

OHSA (Occupational Safety and Health Administration) – Enacts policies to save lives, prevent injuries and protect the health of workers.

FEMA (Federal Emergency Management Agency) – Coordinates a response to a disaster in the U.S. that overwhelms the resources of local and state authorities.