Copy of Practical Economics

Your Role as a Consumer

What is a consumer???

Section 1: Consumption, Income, and Decision Making

Disposable and Discretionary Income

Opportunity Cost Rational Choice

Why do you think companies

spend millions of dollars on

advertisements??

Comparison Shopping

Promise made by the manufacturer

or seller to repair or replace a product

within a certain time period if it

is found to faulty.

brand name- a word, picture, or logo on a product that helps consumers distinguish it from similar products

generic brands- general name for a product rather than a specific brand name given by the manufacturer

Evaluating Economic Performance in the United States.

Economic Freedom allows people to choose their own profession, spend money on what they want, and creates an environment that results in consumer satisfaction and profitable success.

Economic Efficiency allows money and resources to be used so that everyone benefits.

Economic Equity insures that everyone is treated fairly in the Market. Minimum Wage and the regulation against price discrimination are good examples.

Economic Security leads to Economic Freedom

Price Stability is designed to keep inflation down and eliminate price gouging.

Economic Growth

Full Employment

Where to Buy

Characteristics......

Economic Freedom

Voluntary Exchange

Private Property Rights

Profit Motive

Competition

Roles in the Economic Process

Entrepreneurs manage the factors of production in order to seek profit.

Consumers set the tone on what is bought, sold, and produced. We have the most power in the Market.

• Government plays an important part because it not only regulates, but it also provides.
• It also protects us by supporting the Economic and Social Goals of the U.S.

Consumer Strategies...

Corporations

Conglomerates

Multinationals

Study of behavior at the most basic level of economic activity.

Demand

Supply

Price

Microeconomics

Collusion- illegal

classified as a market failure.

Unintended side effect.

both positive and negative.

Examples of Positive: Health Care, Public Education, and Taxation.

Examples of Negative: Pollution, the use of steroids and antibiotics in our food, and overfishing.

Externalities

Market Structures

Types of labor

education

employment

social services

transportation

administration of justice

natural resources

the environment

80% of state spending is directed toward;

inter-govt. expenditures,

public welfare,

insurance trust funds,

higher education,

highways,

hospitals,

interest on the public debt.

20%

corrections,

health,

natural resources

utilities,

municipalities,

townships,

school districts,

other special districts.

Macroeconomics

any person that buys or uses goods and services to satisfy personal needs and wants

A consumer is...

You and everyone around you are consumers.

Consumers buy a variety of things--food, clothing, cars, movie tickets, etc.

In this section, you'll learn how to spend--or not spend--your income wisely.

Income is...

money received, especially on a regular basis, for work or through investments.

Ways that the govt. has stepped in..

• Sherman Antitrust Act- Protects trade from Monopolies.
• Clayton Act- Outlaws price discrimination.
• The Federal Trade Commission- Watchdog Organization to control fair trade and commerce.
• Public Disclosure- Companies must post any new information that they have to keep consumers well informed.
• Indirect Disclosure- The use of various media outlets so companies can put out "fine print" to keep consumers in the loop.

A person's role as a consumer is to consume. Their ability to do this is based on their available income and how much they choose to spend and save.

Income can be both disposable and discretionary.

Section 1 Vocabulary

consumer

disposable income

discretionary income

rational choice

1. What is the difference between disposable and discretionary income?

2. What three considerations should govern your decision making as a consumer?

Essential Questions

HOOK

Why is this unit important?

Bell Ringer 2/23/2016

1. Who is a consumer?

2. Name the two types of income

3. If I gave you $50, what would you buy and why? What questions did you ask yourself to figure out what you'd buy?

It will help you learn how to make wise and rational consumer choices.

The amount of income we have is dependent on variables like education, occupation, experience, and health.

Think about a product you've recently purchased and respond in your journal. Be ready to share, raise your hand to respond.

• Before making your purchase, what questions did you ask yourself or others? What information did you look for?
• Why did you buy this particular item and not another?
• Do you think you acted wisely in making your purchase? Why or why not?

getting information on the types and prices available from different stores and companies

BELL RINGER 2/29/2016

Why are we still learning this??

Exit Ticket

WORK PERIOD

1. Use the 4 vocabulary words to write

a short paragraph (1-3 sentences) describing the process of consumer choice.

2. What kinds of products are purchased with discretionary income?

3. What are 3 questions a consumer should consider before deciding to make a purchase?

4. List 2 major purchases you've made in the last month. Explain why you did or did not use rational choice when making the purchases.

1. What is the difference between disposable and discretionary income?

2. What three considerations should govern your decision making as a consumer?

What you'll learn in

this section?

1. What is one product that you have bought solely based on an advertisement?

2. What was it about the advertisement that caused you to buy the product?

• Forms of advertising
• How to practice comparison shopping

It is generally worthwhile to get information on the types and prices of products available form stores and companies.

Bell Ringer

VOCABULARY

Take out your notes from this week.

Use the next 10 minutes to study for our quiz.

Write one thing you remember most from this week's lesson.

• competitive advertising
• informative advertising
• bait and switch
• comparison shopping
• warranty
• brand name
• generic brand

To some people, Super Bowl Sunday only means one thing...THE BEST COMMERCIALS.

The most expensive Super Bowl commercial cost Chrysler $12.4 million dollars!

All the steps in consumer decisions involve an opportunity cost.

When you make consumer decisions based on opportunity cost you are engaging in rational choice.

HOOK

Rational Choice:

Choosing the alternative that has the greatest value from among comparable-quality products

Each of you is planning on attending some type of post-secondary institution within the next 3 years.

List 5 items you think you will have to buy once you get to school.

How to Comparison Shop

Visit different stores

Browse the Web

Read newspaper ads

Make phone calls

Reasons that Markets will Fail........

• Inadequate Competition
• Resource Immobility
• Inadequate Information

Markets need the following to succeed.

• Adequate competition must exist.
• Buy/Sell must be well informed.
• Resources must be free to move across industries.
• Prices must reflect costs of production.

Deciding on a product

Warranty

Brand Name vs. Generic Brands

Natural Monopoly

BELL RINGER 3/1/2016

Using your notes:

1. Identify the goal of advertisers/advertisement

2. Identify the goal of consumers

Occurs when a single firm produces a product or provides a service because it minimizes the overall costs.

Examples would be the power or utility companies.

The goal of advertisement is to win your consumer dollars and advertisers are willing to spend millions to attract your attention to their products.

YOUR goal as a consumer should be to obtain the most satisfaction from your limited income and time.

There are 3 basic principles to help consumers reach this goal:

1. gather information

2. use advertising wisely

3. comparison shopping

Governmental Monopoly

Monopolies- One firm controls everything.

Geographic Monopoly

Gather Information

Use advertising wisely

Bait and Switch

Do you ever let ads influence your shopping?

Occurs when the govt. can produce service better than anyone else.

Example would be National Defense.

What information do you search for when looking to purchase a product?

Advertising that attracts consumers with a low-priced product, then tries to sell them a higher-priced product.

Competitive Advertising- attempts to persuade consumers that a product is different from and superior to any other.

When you gather information you...

-Decide how much information you need

-Develop a consumer knowledge base

Occurs when the location cannot support 2 or more such businesses.

Examples would be Charter Cable in Alexander City.

Has this ever happened to you??

Informative Advertising- benefits consumers by giving information about a product

Technological Monopoly

occurs when a producer has the exclusive right through patents/copyrights to produce/sell a particular product.

Example is Apple and iPod

Oligopolies

• Market is controlled by a few large firms.
• Examples- diamonds, oil, tires...

Dividing the market to keep competition out.

Price Fixing- selling products at a fixed price and controlling the supply to maintain that cost

Monopolistic Competition

• Meets all conditions of perfect competition except for identical products.
• Use product differentiation—the real or imagined differences between competing products in the same industry.
• Use non-price competition, the use of advertising, giveaways, or other promotional campaigns to differentiate their products from similar products in the market.
• Sell within a narrow price range but try to raise the price within that range to achieve profit maximization.

Market Price & Profit Maximizing

Under perfect competition, supply and demand set the equilibrium price, and each firm sets a level of output that will maximize its profits.

These charts are located on p. 165 in your books.

Perfect Competition

Is used to evaluate other markets.

Characterized by well informed consumers and producers.

5 major conditions

Large # of buyers and sellers

Buyers/sellers deal in identical products

Buyers/sellers act independently

They are reasonably informed

Freedom

Questions used to Identify Market Structures..........

• How many buyers and sellers?
• How large are they?
• Does buyer or seller have any influence?
• How much competition exists?
• What kind of product?
• Is it easy or difficult to enter market?

Keep yo' stinkin hands off my Economy!!!!

Laissez-Faire

Decision Making as a Consumer

No matter how much money you make, when it comes to spending that money you MUST make choices!!

What do you ask yourself before you buy something?

After you decide if you should buy the item...

Price Adjustment and Equilibrium

Supply and Demand create a situation where price must be fair to both sides.

This sets a market price that goods are sold.

Equilibrium price occurs where supply and demand intersect each other.

Supply equals demand at market equilibrium.

There are three parts involved in making consumer decisions.

A. Deciding to spend your money

B. Deciding on the right purchase

C. Deciding how to use your purchase

Surpluses

Competitive Price Theory and Govt. Regulation

When producers make more of a product than what is needed.

Price must be lowered to get rid of a surplus.

Set of conditions where producers set a fair price so consumers can have a choice.

Govt will step in to set prices in order to reach many Social and Economic goals. (Efficiency, Equity, Growth, Stability)

Reasons that we have prices

They favor neither consumer nor producer.

They are flexible

They require no cost of administration

They are common knowledge.

Without price rationing occurs, but this is highly unfair. This leads to lack of incentives to work hard.

What is price?

Monetary value that is put on a product.

Utility raises price.

Availability affects price.

They serve as signals to connect consumers with producers.

Perform an allocation function for goods and services..

Govt. Regulation in Agriculture

• The Market talks to us by changing prices. This informs consumers and producers on what needs to be bought and sold.
• Govt. sets target price on agriculture then gives aid in two ways:
• Loan support (non recourse-don’t have to pay back)
• Deficiency payments- sale crops at a lower than target price and govt. pays the difference.

Shortages

Occurs when the consumers want more of something that is available on the market.

Production must be sped up to regulate price.

Price Floors vs. Price Ceilings

• Price Ceilings are put into place to keep people from being charged too much for a good or service. Rent Control is a good example of this.
• Price Floors a put into place to keep people from being short changed for things like jobs and such. Example would be Minimum wage.

Should I buy this? Yes!

SCARCE RESOURCES

After you've decided to make a purchase, at least two scarce resources are involved--time and income.

Before you spend your income you must spend time gaining information to choose the best product.

Vocabulary for this Unit.....

Business Organizations

Proprietorship

• Businesses owned by one person.
• Most Common form of business

Partnerships

Advantages

• Easy to start
• Easy to manage
• Owner doesn't share profits

Advantages

• Easy to start
• Easy to manage
• Lack of special taxes on a partnership
• Can attract more financial capital
• Larger in size
• Easy to attract top talent

Disadvantages

Disadvantages

• Each partner is responsible for the others.
• Conflict-not everyone gets along with others.

• High failure rate
• Difficult to raise financial capital
• Small and inefficient
• Owner if financially responsible for losses.

Form of business organization recognized by law as a separate legal entity having all the rights of an individual.

Count for about 20% of the firms in the U.S.

Advantages

• Ease of raising financial capital.
• Directors can hire professional managers
• Provides limited liability for the owner.
• Unlimited life

Disadvantages

• Charters are expensive
• Shareholders have little say in how the company should be run.
• Double taxation of profits
• Subject to more govt. regulation

Corporate Growth

2 ways........

Other types of business Organizations

• Non Profit- schools, hospitals, churches
• Co-ops- Designed to protect and benefit its members.
• Labor Unions and Professional Organizations
• Government- Direct role of producing services(National Defense) and Indirect role (regulating business)

Mergers

Reinvestment

• Vertical- buying a company that makes supplemental goods.
• Horizontal- buying a company that makes same product.

Profit gets put back into company to help it grow larger and serve the public.

Microeconomics Price Ceiling Price fixing Market Equilibrium Target Price Collusion

Demand Supply

Market failure Law of Demand Subsidy Positive Externality

Demand Curve Supply Curve Negative Externality Demand Schedule Supply Schedule Price Discrimination

Diminishing Marginal Utility Law of Supply

Trust Income effect Theory of Production Substitution effect Short Run Elasticity Long Run Inelastic Law of Variable Proportions Substitutes Stages of Production Complements Diminishing Returns Price Fixed Costs Rebate Overhead Surplus Variable Costs Shortage Market Structure Equilibrium Price Laissez Faire Price Floor Oligopoly Competition Monopoly

What is Demand???

What is Supply??

• Willingness to pay for product.
• The Law of Demand says “Demand for product increases as the price of that product goes down.”
• Common sense and simple observations.

Quantity of a product that is offered for sale.

Deals strictly with producers.

Law of Supply states that, “Products will be offered at a higher price, rather than a lower one.”

Three Stages of Production

Demand Curves and Marginal Utility

Economic model that shows how we express our wants of a product.

Marginal Utility is when the newness of a product wears off. This is a pretty common occurrence.

Expectations and Number of Consumers

• The speculations of consumers will directly affect the demand curve. Hurricane effect.
• Also, the more consumers, the better chance that the demand will go up..

Before

and

After

New Technology and Govt. Regulation

Taxes, Subsidies and Expectations

Cost of Inputs and Productivity

Supply Schedules

Market schedule (more than one)

Individual (One producer)

• Costs of inputs explains how the costs of factors of production affect the production of that good.
• Productivity explains how if you don’t make something, there will not be a product to sell.

Taxes create a decrease in supply. Seen as a cost.

Subsidies create opportunities to make more of something (increase).

Expectations can cause a company to hold off on production or flooding the market with something.

A new invention or method that speeds up or slows down production directly affect supply.

Governments step in to put quotas(limits) on what to produce or lift tariffs (taxes on imports) to affect the supply of product.

Consumer Taste and Income

Changes in Demand…..

(leave room in notes to draw curves on board)…..

How to determine Elasticity

Substitutions and Complements.

Factors that Affect Demand….

• Change in Demand is where the curve either expands or shrinks.
• An increase in Demand (D) will cause the curve to move right.
• A decrease in Demand will cause the curve to move left.

• Not everyone wants that same stuff.
• A variety of goods and services creates economic freedom and voluntary exchange.
• This can affect Demand in a negative or positive way.

• Changes in price in related products will cause demand to change.
• Substitutes are similar products that will either benefit or not from changes in demand.
• Complements can cause demand shifts as well.

Write the 3 questions on side of this chart. They help determine the elasticity of a product.

Changes in Quantity Demanded cause movement from point to point up and down the curve.

Two major factors are income and substitutions.

If you don’t have enough money you won’t be able to buy something.

Also, if there is an adequate substitute for a good or service at a cheaper price; the original product will not be bought.

Income is important because if you have more money you are more likely to purchase goods and services than if you were broke.

Theories of Production

There are six factors that affect demand:

Consumer Taste

Consumer Income

Substitutions

Complements

Expectations

Number of consumers

Market curve

• Explains the relationship between land, labor, capital, and the output of goods and services.
• Deals with the short run, which calls for change in production and its relation to labor.
• Short run deals with just labor, while long run allows for a firm to adjust over an extended period of time.
• Law of Variable Proportions says that if you change just one factor, the short run will be affected. (Ex. Retail, Restaurants)

Changes in Supply and Factors

Demand Elasticity

There are also six factors that affect supply:

Cost of Inputs

Productivity

Taxes and Subsidies

Expectations

New Technology

Govt. Regulation

• Supply is just like demand only the curve goes in different directions.
• The increase in supply goes right, while decrease goes left.
• Change in quantity (Q) is movement up and down the curve.

Demand Schedules

Individual Schedule (1 firm/seller)

Market Schedule (more than one seller)

• Elasticity is a measure of responsiveness.
• It is referred to the change in demand due to a price change.
• If the change is large then the product is very elastic.
• If there is no change then the produce is inelastic.
• The availability of an adequate substitute is very important to the elasticity of a product.

Costs and Cost Principles

• Fixed Costs, Variable Costs, Total Costs, and Marginal Costs.
• Combination of costs and inputs affect the way businesses produce.
• Gas stations have high fixed costs due to equipment and taxes, but have a low amount of variable costs.
• E-commerce is the exact opposite. It has a low overhead, but high ratio of variable costs.
• Businesses try to reach point of profit maximization (Money taken in must cancel out money spent.)

Relationship between Supply and Demand.

Supply and Demand have a very strange and important relationship.

Companies produce goods based on your wants and needs.

This system is designed to benefit everyone.

Elasticity is different for Supply because substitutes play no real role in change. Neither does the delay of purchasing.

1. How much do you think the average American family spends on groceries each month?

2. How many credit cards do you think the average American holds?

3. How many cars do you think the average American family own?

4. Do you compare prices when you shop?

5. Do factors other than price influence your buying choices?

6. How much of your income or allowance do you save?

Bell Ringer 2/8/2017

Vocabulary for this Unit........

Macroeconomics closed shop

civilian labor force strike

Union shop craft union

modified union shop picket

Agency shop mediation

arbitration lockout

Injunction company union

fact-finding glass ceiling

Right to work law unskilled labor

two tier wage system skilled labor

Intergovernmental revenue professional labor

per capita public sector

Equilibrium wage rate private sector

theory of negotiated wages Medicaid

Federal Budget Budget deficit

Budget Surplus Fed. Debt

Mandatory spending discretionary spending

deficit spending entitlement

Semi-skilled labor giveback boycott

seizure money

medium of exchange commodity money

fiat money monetary standard

Federal Reserve System

Money

Substance that serves as a medium of exchange, measure of value, and a store of value.

Characteristics.....

2 Types

• Paper or Specie (Coined) type of currency.
• Must have Portability
• Durability
• Divisibility
• Limited Availability

Monetary Standards

Commodity- used also for some other useful purpose.

Fiat- backed by govt. decree.

• Congress is given power from Article 1, Section 8.
• Monetary standard is the means by which a government makes its currency portable, durable, divisible, and limits supply.
• Greenbacks- paper currency that were declared legal tender. They weren't backed by gold or silver, but trust.
• Gold Standard- sets value of currency against the value of a specific amount of gold.
• two major advantages- security and prevents the overprinting of money
• disadvantages
• based on speculation
• people may cash out their money
• price of gold not fixed
• political risk of failure

Banking

What is Macroeconomics???

• Federal Reserve System is a central bank run like a corporation
• Banks must buy in and purchase stock.
• Bank of the government
• Privately owned.
• Set monetary policies control flow of cash in U.S.

• The Taft Hartley Act put limits on what unions can do in labor/management disputes. It had two provisions
• 80 day cooling-off period
• Right to work law
• The AFL-CIO was set up to unionize industry that had not been in the past. The Congress for Industrial Organization (CIO) was another way that the unions could organize nationally.

Deals with Economy as a whole.

Covers topics like…..

GDP

Inflation

Labor

Economic Growth

Taxes and Federal Spending

Governmental Revenue

The Economics of Spending

Mandatory vs. Discretionary

Measuring a Nation's Output

Types of Taxes

Economic Impacts of taxes

• FICA
• Employers and employees share the burden
• see a deduction in your check for both Medicare and Social Security.
• Social Security is a 6% flat tax rate.
• Medicare is taxed at a 1.45% rate.

Social Security

income security

medicare

interest on the federal debt

some health programs

veterans’ benefits

• Intergovernmental revenue is the largest form of state revenue. This is funds collected by one level of govt. and redistributed to another level.
• Sales taxes are the second largest form of state revenue.
• Retirement contributions are the third largest source of revenue.
• Individual income tax is the fourth largest source of income.

• Our Government spends more than all of the private companies out there. Known as Public Sector. Didn’t see significant rise 1940s.
• WWII
• Growth of Govt.
• Public works projects
• Per capita spending in 2009 was $11,458.00
• Private Sector provides small portions of services to the public.

• Gross Domestic Output (GDP)- dollar amount of all final goods and services produced within a country's borders.
• It is the measure of a nation's output. Even though Hyundai is a Korean car, it is produced in the U.S.
• It is a calculation of a country's production over the span of a year.
• When the GDP is a higher number that means that employment numbers are high, economy is in better shape, etc.
• Measured per capita (by person) to determine economic growth.
• Gross National Product (GNP) is used to determine how much a country takes in every year.

Resource Allocation- raise production costs and price. Affect supply and demand.

Behavior- Sin taxes and tax breaks can affect the behavior of the consumer.

Promote Economic Growth- affect the incentives to save, invest, and work.

• Proportional tax- imposes same percentage rate of taxation on everyone.
• Progressive tax- imposes a higher tax on people with higher incomes.
• Regressive tax- imposes higher rate on low incomes.

2 kinds of spending

Largest categories of spending (2/3) include:

elementary

public utilities;

hospitals;

police protection;

interest on debt;

public welfare;

highways.

• Buys goods and services from businesses to provide other service to the general public.
• Tanks, planes, manpower

• Payments to disadvantaged citizens
• Funding for programs like medicare, medicaid, grants, welfare, unemployment, Soc. Security

The other 3rd includes expenses;

housing & community development,

fire protection,

parks & recreation.

Ability-to-Pay Principle-Belief that people should be taxed according to their ability to pay regardless of the benefits they receive.

Factor One – it recognizes that societies cannot always measure the benefits derived from government spending.

Factor Two – It assumes that people with higher incomes suffer less discomfort paying taxes than people with lower incomes.

Employment and Unions

Decline of the Unions

Most of the Public makes up the civilian labor force.

Labor movement started during the colonial times. Most skilled workers unionized.

There are four major categories of labor.

• Unskilled labor have the least amount of human capital and generally paid the lowest.
• Semiskilled workers usually operate basic equipment that call for minimal amounts of training.
• Skilled Laborers possess a higher human capital and hold jobs like carpenter, typists, computer techs.
• Professionals have the highest knowledge based education for their jobs.

Tax Reform

Reasons for Union Decline:

• Employers made strong effort to keep union out.
• New additions to the labor force had little loyalty to unions.
• Unions are victims of their own success.

Three Criteria

• Economic Recovery Tax Act of 1981
• Reduce taxes for businesses and individuals
• 1986
• Reduced the 16 brackets to two (15 and 28%)
• Omnibus Budget Reconciliation Act of 1993
• Need to balance the budget
• Added two top tax brackets, 36 and 39.6%

Federal Govt. Expenditures

Impact

2/3 of our budget is on mandatory spending

Discretionary spending takes up the rest

Deficit, Surpluses, and The National Debt

Impact of the Debt

• Affects resource allocation
• Can boost economies in certain areas, while hurting others.

• Redistributes income

• Competes with private sector
• Cost differences due to subsidies at the expense of the taxpayer.
• Also increases power and role of govt.

Unions

Govt. Spending

Acts of Legislation

• Deficit spending has been the trend since the early part of this decade.
• Treasury Bonds and the actual selling of debt is used to generate some kind of revenue for the Federal Govt.
• The U.S. Debt has doubled in only 6.5 years. $6.74T to $12.9T in 2010. It just hit $14.3 T on May 16, 2011.

• Govt. is different than pvt. sector. We pay back our debts, they don’t.
• Taxes go up, people take on the burden, businesses get regulated, etc.
• Interest rates either rise or fall, inflation, devaluing of the currency, etc.

Collective Bargaining

Tax types

State and Local Expenditures

Principles of Taxation

The Norris-LaGuardia Act (1932) prevented federal courts from ruling against unions engaged in peaceful protests.

The National Labor Relations Act (Wagner Act) established the right of unions to participate in collective bargaining.

The Fair Labor Standards Act (1938) established a minimum wage and prohibited oppressive child labor.

Collective Barganing – union reps meeting with industry reps on differences

Strike – refuse to work until demands are met

Picket – Parade in front of business

Boycott – mass refusal to buy products

Lockout – Business refuses to let employees work

Most unions participate in protests for workers rights: Strikes, Picketts, and Boycotts.

• Taxpayer Relief Act of 1997
• New tax brackets and Increased the deduction for children and educator expenses
• 2001 Tax Cut
• Add a 10% bracket and reduce the top brackets, the highest being at 35% by 2006
• 2003
• Increase the tax bracket for the 10% group from $6000 to $7000
• Expanded the child tax credit to $1000

• Excise Tax is levied on things like gas and liquor.
• Estate taxes are levied when property is transferred form one individual to another.
• Gift taxes are made on donations, the giver is the person responsible for this tax.
• Corporations have to pay taxes on income and this accounts for the third largest category of taxes.
• Customs duties are levied on goods brought into the United States.
• About 1% of federal revenue is collected through miscellaneous fees.

• Individual income tax
• 16th amendment
• Govt. collected nearly 45% of its income
• paid through payroll deduction
• progressive tax
• Indexing keeps workers from paying more in taxes due to inflation.

Benefit principles-Those who benefit from government goods and services should pay in proportion to the amount of benefits received.

First Limitation – Government services provide the greatest benefit to those who can least afford to pay for them.

Second Limitation – the benefits often are hard to measure.