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Safety Nets via Transfers

Limitations of free enterprise:

- Not all people can work - age and sickness/disability = poverty. 12.5% to 15% of U.S. population lives in poverty

Subsidy- government payment to help cover an economic cost.

Public transfer payment- tax dollars distributed to people who did not work for it.

Externalities - Negative and Positive

An "externality" is a side-effect of an operation/transaction that affects someone other than the producer or consumer.

Negative: negative effect or cost- pollution of the air or water/ground affects all people.... how?

Positive : something that provides a benefit to people not involved in the economic activity- producing or consuming.

Public Goods?

Free Riders?

Most activity occurs in the market place- households and businesses. BUT....

Market failures occur when folks not part of the market benefit....

Goods and services provided by government with tax payer $

A beautiful bridge, no?

Free riders or free loader problem?

Business has no incentive (profit motive) to produce certain goods/services... folks just won't pay....

A free rider/loader- a person who benefits but does not pay.... Argh!

Infrastructure (goofy word, no?)

Characteristics of Public Goods- There are 2

1) People cannot be excluded...

2) One person's benefit or use does not reduce the benefit to others, i.e. we all benefit!

Who pays for 4th of July?

The goods and/or services necessary for the smooth functioning of society?

Some examples: highways, mass transit, power generation, water systems, sewer systems, airports, education, health care, police and fire protection..... What the heck!

National Defense & Street Lights!

Government and Free Enterprise Chapter 3 Section 3

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