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.