Providing Public Goods, A Safety Net

Public Goods A shared good or service for which it would be

inefficient or impractical to make consumers pay for individually or exclude nonpayers. Ex: Roads, Dams

Taxes are used to pay for public goods. So we don’t get private bills for public projects.

Everybody can use public goods. The value is not significantly reduced by people. The cost is not significantly raised by people.

Cost is the driving force behind public goods. Public goods:

1. Are cheaper to provide publically than they would be to provide privately.

2. Benefit society more than they cost. Public goods fall into the public sector category.

Free Riders Someone who would not choose to pay for a good

or service but gets the benefit of them if they are provided as a public service. Ex: Public Park

Free-Riders are a market failure. Externalities

An economic side effect that generates benefits or costs to someone other than the person deciding how much to produce or consume.

Positive Externality Ex: Fixing up an old house.

Negative Externality Ex: Pollution

Externalities are also market failures. The government encourages positive externalities

but aims to limit negative externalities.

Wealth is spread unevenly throughout society. The government tries to help people that are

poor. Welfare

Collected from taxes and given to eligible poor people. Began under FDR following the Great Depression.

Cash Transfers Are direct payments of money to poor, disabled, or

retired people. 1. TANF (Welfare) is for the poor. 2. Social Security is for the retired. 3. Unemployment is for the temporarily out of work.

Must show an effort to get a job. 4. Workers’ Compensation is for workers injured on the job.

In-Kind Benefits Goods and services provided for free or at greatly

reduced prices. Ex: food stamps, subsidized housing, legal aid.

Medical Benefits Medicare

Health Insurance for the elderly and disabled Medicaid

Health Insurance for the poor. Education

The government funds different programs for impoverished students.