Government in the Sector Economics

Market failiure

Price mechanism takes into account private benefits and costs of production to consumers and producers, but it fails to take into account indirect costs

free riders

groups or individuals who benefit from a good or service without contributing to the cost of supplying the good or service

relative poverty

those whose standard of living is substantially lower than the average for the economy as a whole

externalities

external costs and benefits that private agents in a market do not consider in their decision-making process

business cycle

fluctuations in the level of economic growth due to either domestic or international factors

Australian Constitution

the document that provides the overall framework for Australia’s system of democratic government and the relationship between the Commonwealth and state governments

public sector

the parts of the economy that are owned or controlled by the government

direct taxes

paid by the individual or business firms on which they are levied but they cannot be passed on to someone else

indirect taxes

levied on individuals and business firms but they can be passed on to someone else

privatisation

the government sells public trading enterprises to the private sector

average rate of tax (ART)

the proportion of total income earned that is paid in the form of tax

marginal rate of tax (MRT)

the proportion of any increase in income that must be paid as tax

progressive tax

higher income earners would pay a greater proportion of their income as tax than lower income earners

regressive tax

higher income earners would pay a smaller proportion of their income as tax than lower income earners

proportional tax

all income earners pay the same proportion of their income as tax

tight monetary policy

upward pressure on interest rates

loose monetary policy

downward pressure on interest rates

government business enterprises (GBE)

businesses owned and managed by a government at either the Commonwealth or state level

Corporatisation

occurs when the government encourages public trading enterprises to operate independently from the government as if they are private businesses in order to improve efficiency and profitability

competition

the pressure on business firms in a market economy to lower prices or improve the quality of output to increase their sales of goods and services to consumers

Australian competition and consumer commission (ACCC)

Australia’s competition watchdog which ensures that businesses do not engage in anti-competitive behaviour

Renewable resources

inputs into the production process that reproduce themselves ensuring that present consumption of these resources does not necessarily reduce the ability of future generations to consume them

non-renewable resources

inputs to production where the stock of the resource is permanently depleted in the process of production and consumption

fiscal policy

influence resource allocation, redistribute income and reduce the fluctuations of the business cycle

The Budget

tool of the government for the implementation of fiscal policy by showing the government’s planned expenditure and revenue for the next financial year

automatic stabilisers

instruments inherent in the government’s budget that counterbalance economic activity

structural component

explicit or deliterbate changes in government spending or taxation policies

cyclical component

changes in the government spending and/or revenue which are caused by changes in the level of economic activity according to business cycle