Economic Functions of GovernmentUnit #9

6 Economic functions of government• Maintain legal and social framework• Maintain competition• Provide Public Goods and Services• Correct for Externalities• Stabilize the Economy• Redistribute Income

Maintain legal and social framework• Define and enforce

property rights (court system etc.)• Establish a monetary

system (Federal government controls the amount of money in circulation, regulates banks etc.)

Maintain competition

• Create and enforce antitrust laws (government regulates prices of natural gas to homes, etc.)

Provide public goods and services• Public goods and

services are those that markets will not provide in sufficient quantities (national defense, post offices, schools)

Correct for externalities• Reduce negative externalities

(pollution in lakes and rivers by industrial waste)• Encourage increased production

of goods and services that have positive externalities (public education, government subsidizes it because of the flow to society)

Stabilize the economy• Reduce unemployment and inflation and promote economic

growth! (raising or lowering taxes etc.)

Redistribute income• Redistribute income from people

who have higher incomes to those with lower incomes. (higher taxes for those with higher incomes helps pay for Welfare etc. )