Mixed Economies

Chapter 2 Section 4

Reasons for ‘Mixed’1. Laissez-faire economics not realistic

–Some governmental involvement needed–Some needs can’t be met in private

marketplace–Government needs to protect private

property• 5th & 14th Amendments (due process of law)

–Government try to ensure fairness

2. Balance needs with freedom– Must prioritize goals– Some goals better met by free

market, others are not– Ex: Security versus freedom

Circular Flow Model, adjusted

• Add government in middle–Factor Market interference–G & S Market interference–Households and firms taxed–Money transfers to households

and firms

Compromise in AmericaCompromise in America

Market Economy (Free Enterprise) restricted by

government

Government Intervention• American Government is a Republican

form of government–People are elected into office by citizens–These representatives make laws that

reinforce the will of the society

• Our rulers derive their power from the people

The American People Desire…

• Collective Goods and Services (also known as public goods and services)–These are items that benefit large

numbers of people and would not be available to everyone if each individual had to provide for them

–Examples include:

National Defense

Public Schools

Highways

Government method of Supplying Public Goods

• TAXES!!!–Income Tax–Sales Tax–Property Tax–Gasoline Tax–Luxury Tax–Automobile Tax More on taxes later in the class…

Regulatory Role of Government

• Some industries would not benefit the whole if allowed to compete freely–Prices would rise –Quality would decline

• As a result the government regulates, or intervenes, in certain industries

• Examples include:

Electricity

Utilities

Pollution Control

Government has also outlawed MONOPOLIES

• A monopoly is when one business controls the entire production of a product

• This would lead to a breakdown of our economy (no Invisible Hand to regulate)

Externalities• Negative

– Pollution– Global Warming– Noise

• Positive– Smoke Alarms– Well maintained

lawn & home value– Good Schools &

Community Crime Rates

Government Intervention Debate

• Basic Arguments:–Economic

Efficiency–Equity–Consumer

Protection

• Should we limit the role of government more?

• Should we increase the role of government more?