SSEF5a. Explain why the gov’t provides public goods and services, redistributes income, protects private property rights, and resolves market failures.

STANDARD SSEF5a. Explain why the gov’t provides

public goods and services, redistributes income, protects private property rights, and resolves market failures.

SSEF5b. Give Examples of gov’t regulation and deregulation and its effects on consumers and producers

ROLE OF THE GOVERNMENT IN A MIXED-MARKET ECONOMY:

Provide public goods and services

Redistribute income

Protect private property rights

Resolve market failures

Maintain Competition

PUBLIC GOODS AND SERVICES

Public goods and services: provided by the government when the private market is unable or unwilling to produce the good.

2 CHARACTERISTIC OF A PUBLIC GOOD

Shared Consumption: The consumption of

the good by one person does not diminish the satisfaction by another person who consumes the exact same good.

Example: Interstates

Non-Exclusion: It is nearly

impossible to keep a person who is unwilling to pay from enjoying the benefits of the public good.

Example: National defense

EXAMPLES OF PUBLIC G & S

REDISTRIBUTION OF INCOME Redistribution of income:

taking tax money from those who make a higher income and giving it to lower income citizens through transfer payments.

REDISTRIBUTION OF INCOME Transfer Payments:

a payment made to individuals by the federal government through various social benefit programs.

Payments subsidize the income of recipients to allow the consumption of necessities.

Examples:WelfareSocial SecurityFood StampsMedicaid/Medicare

PROTECT PRIVATE PROPERTY Private Property Rights:

Laws created by governments that regulates how individuals can control, benefit from and transfer property. 

Essential in a market or mixed-market economy Businesses will not expand or invest

without rights to their own property. Includes intellectual property such as:

Copyrights Patents Legal documents (real estate, cars, etc.)

MARKET FAILURE Market Failure:

Occurs when the private market is unable to produce goods or services in a way that the benefits society

MARKET FAILURE A market failure can happen

when (there is):1. Inadequate Competition

(businesses have to much “market power”)

2. Buyers and sellers are NOT well informed

3. Resources do not move easily from one industry to another

4. Unreasonable Prices5. Externalities

CORRECTING MARKET FAILURES

Externalities – when a third party benefits or is hurt from the production or consumption of a good or service.

EXTERNALITIES: Positive Externalities – when a

third-party benefits from the production or consumption of a good/service.Example: your new college roommate

plays their iPod full o fall your favorite songs. You enjoy it even though you didn’t have to pay for it.

EXTERNALITIES: Negative Externality – when a third

party is harmed by the production or consumption of a good/service.

Example: industries that cause air pollution during the production of a good or service.

MARKET POWER: MAINTAINING COMPETITION Market power refers to a market

failure resulting from the formation of monopoly or oligopoly market structures.

Monopoly: One sellerOligopoly: Few sellers

MARKET POWER: MAINTAINING COMPETITION The government uses regulation

and deregulation to make sure industries stay competitive.

Regulation-tighter restrictions and rules companies must follow

Deregulation- relaxing rules and laws companies must follow

EXAMPLES

Regulation Deregulation

FDA-food and drug safety

EPA- environmental safety

FDIC- protection within the banking system

18th Amendment Banks (re-regulated

in early 2000’s)

Phone Companies Banks (deregulated

in 1980’s) Airlines 21st Amendment

PUBLIC OR PRIVATE GOOD?

Activity:

PUBLIC OF PRIVATE GOOD?Make this chart on your paper:

Cannot Share Consumption

Shared Consumption

Can Be Excluded

Cannot Be Excluded

PLACE THE FOLLOWING ITEMS IN THE GRID:

A. College education

B. Electric powerC. HaircutD. National

DefenseE. Six FlagsF. Mosquito

treatmentG. Cable televisionH. Canine rabies

shot

I. Street lightsJ. Panama CanalK. Public toll roadsL. Police

protectionM. Health careN. National forest

campgroundO. Potato ChipP. Auto airbags

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