Economic%20Functions%20of%20Government - Economic Functions...

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Economic Functions of Government 1. Provide LEGAL FRAMEWORK that defines, supports a market-based economy a. Establishes a set of rules for interactions among economic agents (commercial law) b. Establishes secure private property rights c. Provides for the enforcement of contracts d. Establishes product safety standards and standards of production 2. Provides INFRASTRUCTURE that supports a market-based economy a. Transportation: Builds & maintains transportation infrastructure – i.e., roads, highways, bridges, tunnels, airports, seaports, etc. b. Utilities: c. Communications: 3. Maintain competition a. Antitrust laws – If economy is closed, then antitrust laws are relevant If economy is open, then antitrust laws tend to be unnecessary b. Regulates natural monopolies to prevent abuse of market power. 4. Reallocation of scarce resources a. Public vs. Private Goods, and the Free Rider Dilemma: Reallocates resources away from the production of private goods so that public goods may also be created. A responsible government
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will shift resources so that society’s desired combination of private & public goods are produced. No more, no less. b. Externalities: Reallocation may be linked toward correcting or adjusting for externalities. i. Positive externalities – resources are reallocated so that more of a socially beneficial market activity is provided (i.e., public education, college education, funding for research in the basic sciences – all of
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Economic%20Functions%20of%20Government - Economic Functions...

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