The term “public sector” refers to federal, state, and local government units. Here we want to examine the economic functions carried out by the public.

The term “public sector” refers to federal, state, and local government units.

Here we want to examine the economicfunctions carried out

by the public sector units.We also want to describegovernment expenditures

and receipts

Enact and enforce laws governing product and factor market transactions.

Enact and enforce laws to protect the environment, ensure workplace and product safety, truth in advertising, and provide other social regulation.

Contract enforcement

The public sectormust establish and enforce the “rules

of the game.”

Country Piracy Rate Piracy Loss(millions)

Former SovietRepublics

97% %10.4

Turkey 97 158.7

Bulgaria 95 31.0

Romania 95 20.9

Russia 94 540.6

Poland 91 201

Europe’s Software Piracy Rankings, 1994

Source: Business Software Alliance

Enforcement of antitrust statutes (such as the Sherman Act).

Regulation of telephone, electricity, natural gas, or cable TV rates.

The JusticeDepartment’sprosecution of Microsoft is an

example of antitrust enforcement.

The market can’t be trusted to produce an

equitable, or in any case,politically acceptable distribution of income

Income redistribution is accomplished by means of transfer payments. These include:

•Social security payments

•Aid to the permanently disabled

•TANF

•Medicare

•Medicaid

•Unemployment compensation

Mean Household Income of Quintiles, 1997

Source: Bureau of the Census

Income Quintile

HighestFourthThirdSecondLowest

Mean Incom

e (

dollars

)

140000

120000

100000

80000

60000

40000

20000

0

122764

57582

37177

22098

8872

Shares of Household Income of Quintiles, 1997

Source: Bureau of the Census

Income Quintile

FifthFourthThirdSecondLowest

perc

ent

of

tota

l in

com

e

60

50

40

30

20

10

0

50

23

15

9

4

Public goods aregenerally impossible

to withhold from thosenot willing to pay for

them.

Free riders are those who enjoy the benefits of public goods without paying for them.

Public goods cannot be supplied by profit seekers since there is both opportunity and incentive to free ride.

Fees for boating licenses and property taxes are two ways government can limit free riding.

Negative externalities (or spillover costs) result when private production or consumption activity imposes costs on third parties.

Examples include acid rain, noise and vibration near airports, water pollution, cigarette smoke, mosquitoes in Jonesboro, rice pesticides that damage tomatoes.

How does government correct for externalities?

•EPA emissions standards for cars pursuant to the Clean Air Act.

•EPA regulations on sulphur-dioxide emissions from coal-fired power plants.

•Effluent fees, taxes, and fines imposed on polluters.

•Restrictions on smoking in public places.

•Cigarette taxes.

The Employment Act of 1946 makes the Federalgovernment responsible

for “promoting maximum production, employment,

and purchasing power