Gov. Intervention

Monetary Policy

Controls the money supply.

Fiscal Policy

Uses government spending, taxation, and legislation to influence the economy.

Arguments For Government Intervention

Enforce property rights, provide a legal system, standardize weights and measures, ensure a stable money supply, enforce patents and copyrights.

Arguments Against Government Intervention

Benefits special interest groups, poor service due to lack of competition, slow legislative changes.

Examples of Government Intervention

Free public education, safety regulations, sin taxes, mandatory social security contributions.

Market Failure

When the free market fails to allocate resources efficiently, leading to government intervention.

Positive Externalities

Encouraged by government, examples include health care, education, and research & development.

Negative Externalities

Discouraged by government, examples include pollution and cigarette smoke.

Command-and-Control Policies

Regulations requiring or forbidding behaviors, such as mandatory immunizations.

Market-Based Policies

Uses taxes and subsidies to balance the economy, example: tax on sugary beverages.

Pigovian Tax

Tax to correct negative externalities, such as pollution taxes.

Tradable Pollution Permits

Companies can buy/sell pollution rights.

Private Goods

Excludable and rival, such as food.

Natural Monopolies

Excludable and non-rival, such as utilities.

Public Goods

Non-excludable and non-rival, such as national defense.

Common Resources

Non-excludable and rival, such as fisheries.

Cost-Benefit Analysis

Difficult to assign value to social benefits, life, time, and aesthetics.

Tragedy of the Commons

Overuse of common resources leading to depletion.

Price Ceiling

A maximum price that causes shortages, example: rent control.

Price Floor

A minimum price that causes surplus, example: minimum wage.

Tax Collection

Federal government collects 60%, state/local governments collect 40%.

Major Tax Types

Income tax, payroll tax, excise tax.

Proportional Tax

Everyone pays the same percentage.

Regressive Tax

Low-income earners pay a higher percentage.

Progressive Tax

High-income earners pay a higher percentage.

National Debt

Total government debt.

Budget Surplus

More taxes collected than spent.

Budget Deficit

More money spent than collected.

Subsidies

Financial aid from the government to support businesses or individuals.