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Role of Government

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Role of Government & Comparison of the sizes of public sectors in various countries. Presented by Youri, Marshella, Carolyn, Min, Azfar (Group 5) – PowerPoint PPT presentation

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Title: Role of Government


1
Role of Government Comparison of the sizes of
public sectors in various countries. Presented by
Youri, Marshella, Carolyn, Min, Azfar (Group 5)

2
Guidance of Efficiency
  • A firm is said to be operating efficiently when
    it produces a given quantity and quality of goods
    at the lowest possible cost (101).
  • One person cannot be made better off without
    harming someone else, then economic efficiency
    prevails (101).

Group 5.Carolyn Chan
3
Information
  • Market Imperfectionsinformation is not perfect.

Group 5.Carolyn Chan
4
Information
  • Imperfect Market
  • Market for used cars.
  • Prospective buys cannot distinguish between
    low-quality cars and high-quality cars. Although
    a buyer can get some information about a
    particular car by looking at the car and taking
    it for a test drive, this information is not
    sufficient to determine whether the car is a low-
    or high-quality. In contrast, the seller knows
    from experience (Sullivan 317).

Group 5.Carolyn Chan
5
Price System
  • When the market price rises, buyers know that the
    quantity demanded at the prior equilibrium price
    exceeded the quantity supplied.

Group 5.Carolyn Chan
6
Externalities
  • The cost or benefits of a transaction that are
    borne by someone not directly involves in the
    transaction (103).
  • Government can use tuition subsidies to increase
    the equilibrium number of college degree.

Group 5.Carolyn Chan
7
Externalities
Group 5.Carolyn Chan
8
Public Goods
  • Consumption of the good by one individual does
    not reduce the amount of the good available for
    consumption by others.
  • Example all sorts of goods and services,
    including streets, highways, education, parks,
    and public safety, national defense, and space
    exploration.
  • For example, if one individual eats a cake, there
    is no cake left for anyone else but breathing
    air or drinking water from a stream does not
    significantly reduce the amount of air or water
    available to others.

Group 5. Marshella
9
Private Property Right
  • The limitation of ownership to an individual
  • Example when a person buys a house, he/she
    must pay a certain price to the seller before
    getting the right to own it. Once the price is
    paid, the house is that persons possession and
    no one else can enter or trespass without
    permission by the owner.

10
Free Ride
  • The enjoyment of the benefits of a good by a
    producer or consumer without having to pay for
    the good.
  • Example People enjoy the public radio and
    television stations without having to spend money
    on them. They get free rides from people who
    donate money to them.

Group 5. Marshella
11
  • Monopoly
  • Defined as a persistent
  • market situation where there is
  • only one provider of a product or service.
  • It happens because
  • lack of economic competition for the good or
    service.
  • lack of viable substitute goods.
  • Example Microsoft has achieved market dominance
    because Microsofts plan to charge subscription
    fees for access and use. Microsoft sees itself as
    a Global- Software Utility Company in the future.

Group 5. Marshella
12
Business Cycle
  • The periodic but irregular
  • up-and-down movements in
  • economic activity, measured
  • by fluctuations in real GDP
  • and other microeconomics
  • variables.
  • A business cycle is identified as a sequence of
    six phases
  • Contraction
  • Trough
  • Expansion
  • Peak
  • Recession
  • Depression or slump

Group 5. Marshella
13
The Public Choice Theory of Government
  • Rent seeking occurs when an individual,
    organization, or firm seeks to make money by
    manipulating the economic environment rather than
    by making a profit through trade and production
    of wealth.
  • Such as by Gaining control of land and other
    pre-existing natural resources or by imposing
    burdensome regulations or other government
    decisions that may affect consumers or
    businesses.

Group 5. Marshella
14
Public Choice Theory
  • How individual decision- making results in policy
    that conflicts with the overall desires of the
    general public.
  • For instance Many special interest and pork
    barrel projects are not the desire of the overall
    democracy. However, it makes sense for
    politicians to support these projects because it
    will benefit them psychologically as they feel
    more powerful and important. It also can benefit
    them financially as it may open the door to
    future wealth as lobbyist ( after they retire ).

Group 5. Marshella
15
  • Microeconomic Policy
  • Provide the public goods that society requires
  • Government provides public goods avoid the
    free-rider
  • problem that would occur if private firms
    provided the goods
  • 2. Internalizing the externality
  • A wide range of government policies have been
    proposed to
  • deal with externalities
  • -regulation
  • -taxes and subsidies
  • -market-based regulation
  • 3. Promoting Competition
  • Government regulates industries where free market
    competition may not exist and policies other
    industries to promote competition.
  • Ex) Justice Department , Federal Trade
    Commission

Group 5. Yuri
16
  • Macroeconomic Policy
  • Monetary Policy
  • Monetary policy is policy directed toward
    control of money and credit.
  • Major player is the Federal Reserve
  • The Federal Reserve controls the three tools of
    monetary policy-
  • open market operations, the discount rate, and
  • reserve requirements
  • Two basic goals to promote "maximum" sustainable
    output and employment and to promote "stable"
    prices

Group 5. Yuri
17
  • 2. Fiscal policy
  • Policy directed toward government spending and
    taxation.
  • Fiscal policy is determined by laws that are
    passed by Congress and signed by the president.
  • Government has the responsibility of minimizing
    the damage from
  • business cycles.
  • Inflation is too
    strong

government can use fiscal policy increase
taxes
decrease in government spending
increase taxes
decrease the money in circulation
Group 5. Yuri
18
3. Government Spending
2007
  • Budget surplus
  • When government spending is less than revenue
  • Budget deficit
  • When government spending is greater than revenue
  • Current situation
  • U,S . Budget deficit 2007 is 400 billion

Group 5. Yuri
19

Group 5. Yuri
20
100
North Korea
Cuba
Government expenditures as Percent of total
output
75
Vietnam
Sweden
50
Germany
United Kingdom
Canada
Japan
25
United States
Market
Centrally Planned
Types of economy
Group 5. Azfar
21
Centrally planned economy
  • An economic system where government has control
    over the goods and services produced and the
    control of prices that they are sold to the
    citizens.
  • Ex) Cuba, North Korea



Group 5. Azfar
22
Market economy
  • When the government plays a small role in
    control of goods and services plus the control of
    the economy
  • Ex) United States, Canada




Group 5. Azfar
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