ECONOMICS: GOVERNMENT AND THE ECONOMY

Mr. Irwin---Heritage High School

Important Vocabulary

Regulation Eminent Domain Regulatory Agency Merger Deregulation Common Resource Government Failure Poverty Rate

Government Involvement

Government plays a role in economy Should it?

Is it allowed to intervene? Yes—Article I of the Constitution

Allows Congress to perform a variety of tasks Lay and collect taxes Borrow money Regulate interstate and foreign commerce Coin money and regulate its value

Regulation

Government establishes laws and rules designed to influence economic behavior in desirable ways Known as “regulation”

What do you think? Is this right? Turn to a partner and share

Protecting Property Rights

Comes from Constitution Essential for free enterprise system

Why? Incentives matter Ownership:

Encourages people to care about property Encourages productive use of property Encourage development of property in ways

that benefit others Exception: Eminent Domain

Power to force transfer of property to gov.

What Regulatory Roles?

Maintaining Competition Justice Department Federal Trade Commission

Regulatory Agency---makes and enforces standards for an industry or area of economic activity

Common crimes Price fixing Bid rigging Market division

Monitors mergers---illegal if it lessens competition

What Regulatory Roles?

Protecting Consumers, Savers, and Investors “Caveat Emptor” The Jungle Unsafe at Any Speed

Investors Federal Deposit Insurance Corporation

(FDIC) insures all bank deposits for up to 100k per depositor

What Regulatory Roles?

Protecting Workers Department of Labor (DOL)

OSHA---Occupational Safety and Health Administration Sets safety and health regulations for industries Examples: Construction workers wearing

helmets, highway workers wearing reflective vests

Established in 1971, workplace fatalities have decreased by more than 60%

Perils of Government Regulation Problems can occur Overregulation

Regulation itself can be expensive Can actually hinder economic activity

Construction worker may abandon job in order to avoid certain regulations

Balancing costs and benefits Everyone likes clean water, but how clean does

it NEED to be? Regulatory capture—too close with the

industry

Addressing Externalities and Public Goods

Supporting Positive Externalities Subsidies---college grants and low interest

loans Vouchers Public provision—government chooses to

finance the production of a good or service itself Postal service, air traffic control systems

Limiting Negative Externalities Command and control policies---rules and

enforcement Market based policies---rely on incentives

Tragedy of the Commons

Negative externalities happen when property rights are not well defined Example: Air----common resource

Can be overused and destroyed Called the Tragedy of the Commons

Preserving Common Resources Government may decide to preserve

common resources Tolls

Can be a corrective tax Quotas Turn public resource into a private one---

Privatization Example: Overfishing

Promoting Economic Well-Being Promotes economic stability---widely accepted

currency Stimulate economic activity through tax incentives

Economic stimulus packages Income redistribution through antipoverty

programs Progressive taxation Welfare programs Food stamps, public housing, school lunches Earned Income Tax Credit

Any unintended consequences?