201C4ol - -Transfer payments: income payments for which no...

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CHAPTER 4 - THE PUBLIC SECTOR -Under what circumstances do markets fail? -How can government intervention help? -How much government intervention is desirable? -Market failure: the markets are not a failure just have failed to work perfectly -Public vs. private goods: Public good--a "good" whose consumption by one person does not exclude consumption by others (police/fire protection, highways) Private good--a "good" whose consumption by one person excludes consumption by others (natural gas, car, lawn mower) -Free Rider Dilemma: An individual who reaps direct benefits from someone else's purchase/consumption of a public good (nuclear defense); unable to exclude nonpayers -Externalities--cost or benefit that a third party gets -"In The News" page 70--"passive smoke" represents external costs; the market price of cigs does not reflect these costs -Antitrust: government intervention to alter market structure or prevent abuse of market power (price control)
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Unformatted text preview: -Transfer payments: income payments for which no goods or services are received (social security, welfare, unemployment); they attempt to correct for inequity-Taxation: main function is transfer command over resources (buying power) from the private sector to the public sector-Taxes can be:-Progressive--pay a larger % as you earn more $$$ (federal income tax system)-Proportional--pay same % all the way (state sales tax; social security up to the ceiling)-Regressive--pay a lower % as you earn more $$$ (social security tax beyond the ceiling)-Figure 4.6 in text--sources of federal tax revenue-largest source = individual/personal income tax (45%)-second largest = social security tax (37%)-State and Local Revenues—(T-23):-local/cities depend heavily on property taxes-states depend heavily on sales taxes-Cost-Benefit Analysis: projects are only desirable if the benefits exceed the opportunity costs (T-Renton police)...
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This note was uploaded on 02/22/2011 for the course ECON 201 taught by Professor Hickman during the Spring '11 term at Frederick Community College.

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201C4ol - -Transfer payments: income payments for which no...

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