Chapter 11: The Role of Government in Our Economy
Government as a Regulator
How Government Regulates Business
- In some cases, government helps people so that they are not abused by businesses.
- To fulfill these duties, local, state, and national governments pass laws to protect and regulate business.
- There are three levels of government: federal, state, and local.
- The federal government oversees interstate commerce.
- Interstate commerce is business that takes place between states.
- State governments oversee intrastate commerce.
- Intrastate commerce is business that takes place within states.
- Companies that break the law can be fined, sued, or forced to close.
- A monopoly occurs when a company controls an industry or is the only one to offer a product or service.
- An oligopoly occurs when a small number of companies control an industry.
- Companies can also form a monopoly by establishing a trust.
- A trust is a group of companies that band together to form a monopoly and cut out competition.
- The U.S. government passed antitrust laws to promote competition.
- Antitrust laws allow the federal government to break up monopolies, regulate them, or take control of them.
- The government formed the Federal Trade Commission (FTC) to enforce antitrust laws.
- One of the most basic ways the government protects business is by enforcing contracts.
- A contract is a legally enforceable agreement between two or more parties.
- It can be written, verbal, or even formed over a handshake
- Breach of contract occurs when one party fails to live up to the terms of a contract.
- A copyright gives artists the legal right to own their creations.
- A patent is a legal grant for the sole right to own an invention
- A trademark is a name, a symbol, or a characteristic that identifies a product.
- The government also steers economic activity by regulating the production process.
- The Food and Drug Administration (FDA) regulates the manufacture and sale of drugs in the United States.
Government as Provider
Government’s Role in Society
- Government is the largest provider of services in the country.
- Highways, bridges, water treatment plants, and national defense are examples of public goods and services.
- Public goods and services are items provided by government and paid for using tax money.
- Other services promote social welfare.
- Government provides parks, libraries, museums, and swimming pools.
- Governments pay for them with revenues they receive.
- Revenue is the income that governments get from all sources.
- Revenue is also money that comes into a business from the sale of goods and services.
- In some cases, a business may provide a public good or service.
- Privatization occurs when a business offers a public good or service
- For example, most cafés in government buildings are run by private businesses, not the government.
- A transfer payment is a government expense that is provided to help people.
- These payments ensure that people have money when they need it.
- Unemployment, Social Security, and veterans’ benefits are forms of transfer payments.
- The government is the largest employer in the United States.
- Government is also the largest consumer of goods and services.
- The SBA offers loans and advice to people who want to open small businesses.
- The U.S. government helps some businesses compete internationally by providing subsidies.
- Subsidies are monetary grants given to producers or consumers to encourage certain behaviors.
How Government Is Funded
- A tax is an amount of money people and businesses pay governments to help run the nation, state, county, city, or town.
- The purpose of taxes is to pay for public goods and services by spreading the cost among many people.
- Each level of government collects taxes for different kinds of services
- The government provides many incentives to businesses and consumers.
- A tax incentive is a temporary reduction or elimination of a tax that is meant to encourage or discourage an activity.
- A tax break is a special tax benefit given to promote specific economic or social objectives.
How Government Allocates Resources
- Governments allocate resources by deciding the best ways to spend tax revenues.
- They determine which projects are priorities for funding.
- Government spending also affects the distribution of income.