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The Government

The Government. In terms of markets, what is the role of the government?. Production. Regulation. Government. Does Regulation Stifle Growth?. http://www.pbs.org/newshour/economy/makingsense/. People Markets Groups within society Individuals. Efficiency Demand Failures Supply Failures

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The Government

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  1. The Government In terms of markets, what is the role of the government?

  2. Production Regulation Government

  3. Does Regulation Stifle Growth? http://www.pbs.org/newshour/economy/makingsense/

  4. People Markets Groups within society Individuals Efficiency Demand Failures Supply Failures Deadweight Losses Considerations & Effects

  5. Why the invisible hand may fail 4 Reasons Lack of Competition Externalities Public Goods Poor Information

  6. #1. Market Failure

  7. Lack of Competition

  8. Lack of Competition Sellers Gain Restrict Q Higher P Regulation Public Utilities S2 P S1 P2 P1 D Q2 Q1 Q

  9. #2. Externalities

  10. Good Externalities - Benefits Bad Externalities - Costs

  11. Negative Externalities Supply Failure Suppliers do not have to pay the full value Will supply more b/c costs paid by others Costs affect supply Taxes raise price to public equilibrium Social Cost P Private Cost P2 Externality Cost P1 Private Value Q2 Q1 Q

  12. Positive Externalities Demand Failure Public not willing to pay full value Costs or restrictions must be imposed to force price up to societies value Benefits affect demand Subsidies absord costs creating public equilibrium Private Cost P External Benefit P2 P1 Social Value Private Value Q2 Q Q1

  13. Pigouvian Taxes & Subsidies A.C. Pigou Amount of taxes or subsidies needed to change market equilibrium to include public costs & benefits

  14. Externalities – Fracking http://www.colbertnation.com/the-colbert-report-videos/391552/july-11-2011/anti-frack-attack

  15. #3. Public Goods Education

  16. Public Goods Excludable Suppliers cannot prevent use w/o payment Rivals in Consumption Can be used by more than one person National Defense

  17. Problem – Free Riders People who benefit from activity or action but do not pay any costs Transportation Infrastructure

  18. Public Goods vs. Common Resources Common Resources Nonexcludable & rivals in consumption Fishing

  19. Problem – Tragedy of the Commons Overuse Public Amenities - Beaches

  20. #4. Poor Information

  21. Poor Information Infrequent Purchases Reliance in Known Brand Names Expert Analysis

  22. Types of Goods Rivals in Consumption Yes No Private Goods Natural Monopoly Yes Excludable No Common Resources Public Goods

  23. Terms Adverse selection Signaling Moral Hazard deductables

  24. Government Policies

  25. Command Policies - Taxes Flat Tax Affects smaller users P Corrective Tax P1 Demand Q1 Q

  26. Command Policies - Taxes Per Unit Taxes Affects marginal benefit of each plant depending on emissions P P1 D1 D2 Q Q2 Q1

  27. Control Policies - Permits Tradable Permits Limit supply Trading creates market efficiency P Permit/ Supply P1 D Q1 Q

  28. Antitrust Laws Sherman Trust Act of 1890 Clayton Antitrust Act of 1914 Federal Trade Commission Environmental Protection Agency

  29. Taxes

  30. Types of Taxes Proportional Example would be 10% income tax for everyone. Flat Tax Harder for those with less. Progressive Higher rates for higher incomes. Regressive Sales tax. Difference between Marginal & Average Tax Rates

  31. Types of Taxes Individual Income Corporate Income Social Security Property Sales Duties Excise Estate Gift User Fees Tolls

  32. http://www.pbs.org/newshour/bb/business/july-dec11/makingsense_12-12.htmlhttp://www.pbs.org/newshour/bb/business/july-dec11/makingsense_12-12.html

  33. International Comparison of Marginal & Average Tax Rates

  34. Income Inequality

  35. Poverty Poverty Threshold or Poverty Level Minimum level of income needed to maintain a basic standard of living. Determined by the government For individuals. For families. Poverty Rate % of people living below the Poverty Threshold.

  36. Poverty Distribution (Gaps) Traditionally, large gaps between rich & poor a sign of the third (poorer) countries. U.S. Gap widening since the 80’s. Measures of Income inequality Lorenz Curve Gini Index

  37. U.S. Income Distribution, 1947 - 2007

  38. Household Income: 1967-2003

  39. Adjusted Gross Income: 1986 - 2006

  40. After Tax Income Gains: 1979-2005

  41. Poverty Lorenz Curve Measures ratio between richest & poorest quintiles. Gini Index Measures among of distribution Increasing numbers (ranges from 0.0 to 1.0) means less equality

  42. Gini Index since WWII

  43. Poverty Limitations Definition of poverty levels subjective. Transfer payments Means tested In-kind payments Diversity Geographic Age Size of household

  44. Taxation & Inequality http://www.colbertnation.com/the-colbert-report-videos/364881/november-08-2010/the-word---nothingness

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