The Role of Government in Microeconomics

1
The Role of Government in Microeconomics

• What does your local, state and federal
  government do for you?

2
The Economic Functions of Government

• Enforce law and contracts
• Maintain competition
• Provide Public Goods
  - Nonexclusion
  
  - Shared Consumption
• Correct market failures
  a. provide market
  information b.
  Correct negative externalities
  c. Subsidize goods with
  positive externalities.
• Redistribute Income/ Provide and economic safety
  net.
• Stabilize the economy
  a. Fight unemployment
  
  b. Encourage price stability
  
  c. Promote Economic Growth

3
What is a Public Good?

• A good that benefits everybody in society but
  firms will not provide or will inadequately
  provide because the good is either nonexclusive
  or has shared consumption.
• Because a firm can not get the price to cover the
  cost of a good that is nonexclusive or has shared
  consumption , firms will not produce it.

4
Public Good

• Nonexclusion Once a good or service is produced,
  no one can be excluded from enjoying its
  benefits.
• Shared Consumption One persons enjoyment of the
  benefits derived from a good does not interfere
  with anothers consumption of it. (Using a good
  does not diminish the usefulness of the good for
  another person.)

5
Negative Externalities
6
Positive Externalities