Lapu Lapu
The Role of Government in Microeconomics
Presentation Transcript
1. ECONOMICS What Does It Mean To Me? The Role of Government in Microeconomics/ Externalities1 Wali Memon
2. Economic functions of Government:1) Enforce laws and contracts.2) Maintain competition.3) Redistribute income--providing aneconomic safety net.4) Provide public goods -nonexclusion -shared consumption2 Wali Memon
3. 5) Correct Market Failures -provide market information -correct negative externalities -subsidize goods with positive externalities6) Stabilize the economy - fight unemployment - encourage price stability - promote economic growth 3 Wali Memon
4. EXTERNALITIES4 Wali Memon
5. Externality When one person’s actions imposes acost or benefit on the well-being of a bystander. Externalities usually result in market failure.5 Wali Memon
6. Externalities can be:1) Positive: an externalbenefit is imposed onsomeone. (examples: gardens,restored historic buildings,research)2) Negative: an externalcost is imposed onsomeone. (examples: exhaustfrom autos, barking dogs, noisefrom airplanes) 6 Wali Memon
7. Externalities cause markets to allocate resources inefficiently.7 Wali Memon
8. This happens through: 1) CONSUMPTION: consuming a good results in externality. 2) PRODUCTION: producing a good results in externality.In general, an external cost means the marketoverproduces the good (ie, paint). An external benefit means the market underproduces the good (ie, gardens) 8 Wali Memon
9. Are there benefits for other people in the parking lot whensomeone puts their car alarm on? 9 Wali Memon
10. ANSWER: Yes, because thieves don’t know which cars have alarms. What about the club? Are there benefits for other people in the parking lot when someone puts the club on their car?10 Wali Memon
11. ANSWER: No . . .because the thief can SEE the club.11 Wali Memon
12. Your neighbor puts in anice garden. Are youreceiving a benefit?12 Wali Memon
13. When you admit you are receiving a positive benefit, your neighbor
Presentation Transcript
1. ECONOMICS What Does It Mean To Me? The Role of Government in Microeconomics/ Externalities1 Wali Memon
2. Economic functions of Government:1) Enforce laws and contracts.2) Maintain competition.3) Redistribute income--providing aneconomic safety net.4) Provide public goods -nonexclusion -shared consumption2 Wali Memon
3. 5) Correct Market Failures -provide market information -correct negative externalities -subsidize goods with positive externalities6) Stabilize the economy - fight unemployment - encourage price stability - promote economic growth 3 Wali Memon
4. EXTERNALITIES4 Wali Memon
5. Externality When one person’s actions imposes acost or benefit on the well-being of a bystander. Externalities usually result in market failure.5 Wali Memon
6. Externalities can be:1) Positive: an externalbenefit is imposed onsomeone. (examples: gardens,restored historic buildings,research)2) Negative: an externalcost is imposed onsomeone. (examples: exhaustfrom autos, barking dogs, noisefrom airplanes) 6 Wali Memon
7. Externalities cause markets to allocate resources inefficiently.7 Wali Memon
8. This happens through: 1) CONSUMPTION: consuming a good results in externality. 2) PRODUCTION: producing a good results in externality.In general, an external cost means the marketoverproduces the good (ie, paint). An external benefit means the market underproduces the good (ie, gardens) 8 Wali Memon
9. Are there benefits for other people in the parking lot whensomeone puts their car alarm on? 9 Wali Memon
10. ANSWER: Yes, because thieves don’t know which cars have alarms. What about the club? Are there benefits for other people in the parking lot when someone puts the club on their car?10 Wali Memon
11. ANSWER: No . . .because the thief can SEE the club.11 Wali Memon
12. Your neighbor puts in anice garden. Are youreceiving a benefit?12 Wali Memon
13. When you admit you are receiving a positive benefit, your neighbor