3.3 notes

The role of gov’t in the economy

Public Goods

• Provided by gov’t, used by everyone• Funded by taxes• Examples – street lights, national defense• 2 characteristics: 1. can’t exclude anyone and

2. one person’s use doesn’t reduce usefulness to someone else

Market Failure

• Can happen when people benefit or are hurt by something they are not part of

• They are called positive externalities or negative externalities

• Example: free rider that watches fireworks (positive) or pollution in air, water (negative)

Cont’d

• We want to SPREAD positive externalities, sometimes through subsidies

• Example: flu shots for free • We want to SLOW DOWN or STOP negative

externalities• Example: taxing companies that pollute

Gov’t also…

• Provides safety nets for people that may to too old or sick

• Examples: Medicare, Medicaid, Social Security, unemployment insurance

• http://www.cnn.com/2014/02/06/politics/unemployment-insurance/index.html?hpt=po_c2