New User Special Price Expires in

Let's log you in.

Sign in with Facebook


Don't have a StudySoup account? Create one here!


Create a StudySoup account

Be part of our community, it's free to join!

Sign up with Facebook


Create your account
By creating an account you agree to StudySoup's terms and conditions and privacy policy

Already have a StudySoup account? Login here

Econ 2305-011, week 6, Economic function of Goverment.

by: Beniam Notetaker

Econ 2305-011, week 6, Economic function of Goverment. ECON 2305-001 PRINCIPLE OF MACROECONOMICS

Marketplace > University of Texas at Arlington > Business > ECON 2305-001 PRINCIPLE OF MACROECONOMICS > Econ 2305 011 week 6 Economic function of Goverment
Beniam Notetaker

Preview These Notes for FREE

Get a free preview of these Notes, just enter your email below.

Unlock Preview
Unlock Preview

Preview these materials now for free

Why put in your email? Get access to more of this material and other relevant free materials for your school

View Preview

About this Document

Its about the effect that government have on the economy like tax, regulation(environmental, economical, product safety).
DR. Ronnie Liggett
Class Notes
25 ?





Popular in Business

This 11 page Class Notes was uploaded by Beniam Notetaker on Thursday October 6, 2016. The Class Notes belongs to ECON 2305-001 PRINCIPLE OF MACROECONOMICS at University of Texas at Arlington taught by DR. Ronnie Liggett in Fall 2016. Since its upload, it has received 3 views. For similar materials see PRINCIPLES OF MACROECONOMICS in Business at University of Texas at Arlington.



Reviews for Econ 2305-011, week 6, Economic function of Goverment.


Report this Material


What is Karma?


Karma is the currency of StudySoup.

You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!

Date Created: 10/06/16
9/30/2016 Review • Prices are a signal Economic (and Political) Functions • “In its ideal form, a price system allows all of Government resources to move from lower-valued uses to higher-valued uses via voluntary exchange, by which mutually advantageous trades take What role do they play in economic activity? place.” (Free-enterprise!) • “…consumers are sovereign.” (ultimate power) Where does Rule of Law fit in? Important ‘Institutions’ ( Chap 7 & Review) • Rule of Law • Private Property – (includes Property Rights) • Political Stability – (includes “Honest” government) 1 9/30/2016 What if markets “fail”? What do we mean by “fail”? • Market Failure • Too few or too many resources in specific economic activity – A situation in which the unrestrained market economy leads to too few or too many resources • Micro Failures going to a specific economic activity • Macro Failures • Prevents economic efficiency and individual freedom • Is addressed by public policy (government) Economic Functions of Government • In a pure market system, economic efficiency FOR MICRO FAILURES occurs when individuals know and must bear Legal Framework (Institutions) the true opportunity cost of their actions Maintain Competition (Competitive & Open Markets) – In some cases, the price that someone actually Re-Distribution of Income pays for a resource, good, or service is higher or Reallocation of Resources (Property Rights) lower than the opportunity cost that all society pays. (We will explain this in more detail over the FOR MACRO FAILURES next few slides) Stabilize the Economy (reluctantly) 2 9/30/2016 Legal Framework (Institutions) Maintain Competition • “Rules of the Game” – Don’t underestimate the importance! • Monopoly situation • Sports – think about the rules… – “Coach, we’re letting them play.” • AT&T - early 80’s • Administration of Justice • Recent Years --- AT&T Wireless & T-Mobile – Legal System • FCC, FAA, EPA, SEC, FDA, etc. • American Airlines & US Air (Perhaps the biggest impact of Government…?) • Don’t be misled by “competition”… Re-Distribution of Income (3 Types) Reallocation of Resources (Per Text – “Political”) • Income Tax (Progressive) • Public v. Private Goods – Aren’t all taxes a “re-distribution”? – Private Good --- Consumption by one person excludes consumption by another. (Re-Dist to FUND vs. Re-Dist for EQUITY) • Transfer Payments – Define • Price Controls – Per Chapter 5 3 9/30/2016 Public Good --- Consumption by one person does What’s the “free rider” problem? • A person who benefits but does not contribute to not exclude consumption by another. the payment for the benefit. Solves Free Rider Problem Externalities (not in book) • Externalities – Defined: • Resource Misallocations - Types – Occur when the consequences of an economic activity spill over to affect third parties – Market Overallocates = External Costs • Two Types • Negative Externality – Negative (Also called Spillover Costs) – Market Underallocates = External Benefits – Positive (Also called Spillover Benefits) • Positive Externality • Third Parties – Parties who are not directly involved in a given activity or transaction • Property Rights – Rights of an owner to use and exchange property 4 9/30/2016 • Government can also correct positive externalities… • Government can correct negative externalities… – Government financing and production – Special taxes (i.e. a pollution tax or “effluent fee”) – Subsidies – Regulations, etc. – Regulation (Essentially saying – “We want MORE of this”) (Essentially saying – “We want LESS of this”) • Market failure - an example: Negative Externality… • Assume… • No government regulation against pollution • A town with clean air Without considering the • A steel mill opens and emits smoke/smog! impact of pollution, they produce 110 Million – DIRTY AIR Tons (S1). If the negative – More respiratory diseases externality is considered, – Dirtier clothes, houses, cars the price would be higher per S2 and only 100 Million Tons would be produced. 5 9/30/2016 Externalities, continued… What’s the issue? (City A) 6 9/30/2016 Positive Externality City A – Supplying “services” st Pizza Joint on 1 Floor… Looking at this You rent upstairs… another way, City A You love PIZZA! Citye of is able to produce Services more City Services And the AROMA! by not taking care PIZZA issue they areon “Spillover Benefit” creating. Quantity of City Services Another example of Positive Externality… Could music be a Negatively Externality??? • You live in apartment • Neighbor plays sax… What if it’s too loud??? • You enjoy the “free music”… • Spillover Benefit… (Fyi – This is Kirk Whalum) 7 9/30/2016 Education…. I guess that answers the question • What does it give us? – Degree / Diploma – Job… • What else do we get? – Social interaction – Informed citizens • Better decisions? Health, Politics?? – Lower crime rate Back to the positive externalities…. Education As Positive Externality Legal Framework, reprise… • Kelo v. City of New London (Connecticut) • Q40 DP = Perceived Demand DA = Actual Demand 8 9/30/2016 The neighborhood today… • The court held that if a legislative body has found that an economic project will create new jobs, increase tax and other city revenues, and revitalize a depressed urban area (even if that area is not blighted), then the project serves a public purpose, which qualifies as a public use. Kelo Decision – Interesting Result… • Who Affirmed --- Conservative or Liberal Wing? • Affirmed – 5 – Breyer, Ginsburg, Kennedy, Souter, Stevens (i.e. – take the property and give it to someone who will make “better” use of it!) • Dissenting – 4 – O’Connor, Rehnquist, Scalia, Thomas (Re: Exxon-Mobil v. Government) 9 9/30/2016 Macro Failure “Government has a roll in economic stability”(?) • Employment Act of 1946 • Unemployment • Inflation – Full production, employment – Embraced Keynesian Economics • National Debt (?) • Trade Deficit (??) • Humphrey Hawkins – 1978 – Provided for specifics, attempt to quantify goals – 4% or less unemployment – 4% or less inflation… down to 0% (not feasible) – Adjustable by congress… Before we move on…. Who Pays Federal Income Taxes? Macro Points of Interest…. Who’s paying taxes? Or – who’s not paying their “fair” share? How’s the recovery? Whfair share??? What’s holding things up? 10 9/30/2016 Who Pays? Another view… It’s the recovery stupid! • Top 1% - 37% of Federal Income Taxes • Top 10% - 71% • Top 25% - 87% • Top 50% - 98% • Bottom 50% - 2% Very progressive system! 11


Buy Material

Are you sure you want to buy this material for

25 Karma

Buy Material

BOOM! Enjoy Your Free Notes!

We've added these Notes to your profile, click here to view them now.


You're already Subscribed!

Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'

Why people love StudySoup

Jim McGreen Ohio University

"Knowing I can count on the Elite Notetaker in my class allows me to focus on what the professor is saying instead of just scribbling notes the whole time and falling behind."

Jennifer McGill UCSF Med School

"Selling my MCAT study guides and notes has been a great source of side revenue while I'm in school. Some months I'm making over $500! Plus, it makes me happy knowing that I'm helping future med students with their MCAT."

Steve Martinelli UC Los Angeles

"There's no way I would have passed my Organic Chemistry class this semester without the notes and study guides I got from StudySoup."


"Their 'Elite Notetakers' are making over $1,200/month in sales by creating high quality content that helps their classmates in a time of need."

Become an Elite Notetaker and start selling your notes online!

Refund Policy


All subscriptions to StudySoup are paid in full at the time of subscribing. To change your credit card information or to cancel your subscription, go to "Edit Settings". All credit card information will be available there. If you should decide to cancel your subscription, it will continue to be valid until the next payment period, as all payments for the current period were made in advance. For special circumstances, please email


StudySoup has more than 1 million course-specific study resources to help students study smarter. If you’re having trouble finding what you’re looking for, our customer support team can help you find what you need! Feel free to contact them here:

Recurring Subscriptions: If you have canceled your recurring subscription on the day of renewal and have not downloaded any documents, you may request a refund by submitting an email to

Satisfaction Guarantee: If you’re not satisfied with your subscription, you can contact us for further help. Contact must be made within 3 business days of your subscription purchase and your refund request will be subject for review.

Please Note: Refunds can never be provided more than 30 days after the initial purchase date regardless of your activity on the site.