Reference no: EM133274180

Introduction: In our market-directed economy, producers provide goods and services that consumers demand as long as they can collect the selling price and can make a profit. However, there are some products and services that are desired by consumers but that are not profitable for producers to offer. With other products and services, it is not easy or possible to collect the selling price. When either of these factors exists, sometimes the government will provide the product or service or subsidize a company to provide the product or service. The government might also provide goods or services that are not feasible for individual consumers to own.

Public Goods: Goods and services produced by the government are referred to as public goods. One reason for public goods is that it is not feasible or efficient to recover the full costs by charging the people who use the products or services directly. Roads and highways would be a good example of this situation. Another reason for public goods is that the goods or services cannot be sold for a high enough prices to cover production and distribution costs, but they are of sufficient importance to society. Libraries and public schools would be a good example of this situation. Our founding fathers realized that some products and services must clearly be public goods. National defense is an obvious example. It is just not feasible for individuals to purchase missiles to protect their homes against attacks from foreign enemies.

Other Benefactors: Goods and services sometimes benefit people other than the purchasers. The Internet and e-mail not only benefit the subscriber but also provide benefits to everyone who e-mails that person. The subscriber pays for the monthly connection, but all e-mailers receive benefits from their connections, even though they do not pay for them. Of course, most of them have Internet and e-mail connections of their own, which they do pay for, but the more people who have Internet and e-mail, the more use one's own connection is.

Consequently, the Internet and e-mail provide benefits not only to the purchaser but to other people as well. If goods and services are supplied by private enterprises, the price must cover their costs. Buyers must pay for the total costs of production and distribution. If people are unwilling to pay the price, the goods and services are not produced. However, there are some products for which the benefits are so significant 'that their production is justified, even if buyers are unwilling to pay the price.

If our country did not have a literate population, it could not operate industries efficiently or provide the professional services needed by people. This is the justification for the government to pay for education. Because of the benefits resulting from education, families are not required to pay the full costs of their children's schooling. The government pays most of the costs for public education from the collection of taxes from everyone. Public health services, medical research, and postal services are other examples where services benefit people other than those directly receiving the services.

Public Goods and Equality: Sometimes public goods are provided in order to meet the goal of greater equality. Public transportation, for example, is most heavily used by lower-income groups, including young people and the elderly. This is one of the justifications for government subsidies to public transit systems. It helps to achieve the socio-economic goal of greater economic equality.

An alternate way to achieve the goal of greater equality would be to give direct subsidies to low-income people. In some ways, this might satisfy the goal of equality more efficiently. Income supplements might help low-income people more than subsidized bus fares because such supplements permit them to choose the best transportation means for their particular needs.

The argument over which is the best approach-income supplements or public services-will go on forever. On the surface, income supplements and choices seem to be the fairest ways of achieving economic equality, but there may be many other costs involved. For example, if a low-income person decided he or she would like an automobile of his or her own for maximum flexibility, he or she would also incur other expenses, such as gas, insurance, and maintenance costs, just to name a few. In order for supplements to be large enough to cover all the associated costs, the tax burden on the rest of society would have to increase.

QUETIONS: In a strong paragraph that includes supporting information from the lesson. Please cite your outside resources.

A strong paragraph includes a minimum of three to five details from the lesson and is written in Academic English form. For more information on Academic English form, refer to the documents in the Orientation.

1. List five public goods you have utilized in the past month. Put a "yes" or "no" next to each, indicating if this public good could have been obtained through the private sector. Do you think it is better for the public if these goods are provided by the government or by private companies? Why or why not?

2. Why does government subsidize public transportation when most people do not use it? Is there public transportation in your community? If so, what type? Why should a person use public transportation if he or she does not have to?

3. What are some government-provided goods or services that you have benefited from but that you or your family have not directly paid for?

4. What are some goods or services provided or subsidized by the government that help give equal access to all citizens' of the United States?

5. Do you think it helps or hurts the economy when government subsidizes a product? Give an example of a situation when it both helps some people and hurts other people when a product is subsidized.