LESSON 14.1 SLIDE

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Government Spending, Revenue, and Public Choice1414.1 Public Goods and Taxation

14.2 Federal, State, and Local Budgets

14.3 Economics of Public Choice

LESSON 14.1 SLIDE

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How does the demand for public goods differ from the demand for private goods?

How are responsibilities divided among levels of government?

How big is the federal budget, and where does the money go?

Why do politicians need to deal with special interest groups?

Why is it hard to interest the public in the public interest?

CONSIDER

CONTEMPORARY ECONOMICS © Thomson South-Western

14.1 Public Goods and Taxation

Calculate the optimal quantity of a public good.

Distinguish between the two principles of taxation.

Identify other government revenue sources besides taxes.

Objectives

CONTEMPORARY ECONOMICS © Thomson South-Western

14.1 Public Goods and Taxation

benefits-received tax principle ability-to-pay tax principle tax incidence proportional taxation progressive taxation regressive taxation marginal tax rate

Key Terms

LESSON 14.1 SLIDE

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Public Goods

The demand for public goodsA public good is different because it is

nonrival in consumption. A public good is available to all consumers in

an identical amount.

Optimal quantity of the public goodThe efficient level of the public good is found

where the sum of the marginal benefits equals the marginal cost of providing the good.

LESSON 14.1 SLIDE

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Market Demand for a Public Good

Figure 14.1

Because public goods are available to all in identical amounts, the market demand for a public good sums up each person’s demand at each quantity.

In this example, the neighborhood demand for mosquito spraying sums up Alan’s demand, Da , and Maria’s demand, Dm.

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Tax Principles

Benefits-received taxation—those who receive more benefits from the government program funded by a tax should pay more of that tax

Ability-to-pay tax principle—those with a greater ability to pay, such as those with a higher income, should pay more of a tax

LESSON 14.1 SLIDE

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Other Revenue Issues

Tax incidence—indicates who actually bears the burden of a taxProportional taxation—the tax as a percentage of

income remains constant as income increases; also called a flat tax

Progressive taxation—the tax as a percentage of income increases as income increases

Regressive taxation—the tax as a percentage of income decreases as income increases

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Other Revenue Issues

Marginal tax rate—the percentage of each additional dollar of income that goes to pay a tax

Pollution taxes and sin taxesUser feesBorrowing

(continued)

LESSON 14.1 SLIDE

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Top Marginal Tax Rate on Personal Income, 1913–2006

Figure 14.2