SocSci 5 Economics - First Quarter, Week 7 PDF

SocSci 5 ECONOMICS First Quarter Week 7  REVIEW Three Basic Economic Questions What to produce? How to produce? For whom to produce?  REVIEW Economic Systems TRADITIONAL COMMAND...

SocSci 5 ECONOMICS First Quarter Week 7  REVIEW Three Basic Economic Questions What to produce? How to produce? For whom to produce?  REVIEW Economic Systems TRADITIONAL COMMAND MARKET Economy Economy Economy Dictated by the The central planning Laissez-faire; There is clan/family and the authority (e.g. no specific individual community's customs, government) owns all or organization that beliefs, and traditions factors of production controls/dictates the economy  Mixed Economy Objectives ✔ exemplify the different failures and limitations of the market system; and ✔ justify why government interventions are necessary even when a market system is present  Mixed Economy Three Economic Functions of the Government To increase economic efficiency To promote equity To foster macroeconomic stability and growth Production Possibility Frontier A curve/graph that illustrates all possible combinations of output between two goods which can be produced/ manufactured using the same available resources and/or technology  Increase IMPERFECT COMPETITION A efficiency Happens when a consumer or producer can affect the price of Encouraging competition commodities in the market Solving externalities Produces goods at higher prices, and as an effect, it reduces the Providing public goods efficiency of consumer purchases  Increase IMPERFECT COMPETITION A efficiency Sources of imperfect competition: Encouraging competition (a) Natural barrier - high Solving externalities capital to start and compete (b) Artificial barrier- patent Providing public goods and franchise  Increase IMPERFECT COMPETITION A efficiency Examples of Imperfect competition: Encouraging competition (a) Monopoly Solving externalities (b) Monopsony (c) Oligopoly Providing public goods  Increase What the gov't does: A efficiency Regulates the prices of consumer goods and service Encouraging competition Enacts antitrust laws Solving externalities (competition laws) to protect consumers and break Providing public goods agreements and price-fixing of companies  EXTERNALITIES/ Increase SPILL OVERS A efficiency Refers to the involuntary imposition of costs or benefits Encouraging competition by a producer to a third party that is not directly related to Solving externalities the production or consumption Providing public goods of goods or services Negative externalities vs. Positive externalities  "Significant industrial waste is haphazardly dumped into the Meycauayan River, a source of domestic and agricultural water for 250,000 people living in and around Manila. Substantial contamination comes from small scale lead recycling facilities along the river at Marilao, and from the many tanneries that Excerpt from dump untreated hexavalent chromium into the river. Philippines (Marilao) – This river also feeds directly into the Manila Bay, and its effluents contaminate shellfish in commercial Industrial Waste fishing areas." Contamination NEGATIVE EXTERNALITIES  Because herd immunity is an example of a spillover benefit or a positive externality, what could the government do to increase the percentage of immunity in society? (Subsidize vaccinations, which would raise the percentage of people with an immunity; quarantine the sick to prevent the spread of the disease, which would Excerpt from reduce the percentage of the population that is Herd Immunity and Positive infected; or impose regulations that require children entering kindergarten to be vaccinated) Externalities FEDERAL RESERVE BANK OF ST. LOUIS ECONOMIC EDUCATION POSTIVE EXTERNALITIES  Increase What the gov't does: A efficiency Discourages negative externalities by taxing goods Encouraging competition and services that create Solving externalities spillover costs Encourages positive Providing public goods externalities by subsidizing goods and services that create spillover benefits  Increase PUBLIC GOODS A efficiency Non-Excludable: can be consumed by everyone Encouraging competition Non-Rival: won't deplete even if Solving externalities someone else used them Private firms are discouraged to Providing public goods provide public goods because of the lack of incentives and the free-rider problem  Increase What the gov't does: A efficiency Collects taxes to fund government programs, policies, Encouraging competition and provisions of public goods Taxes –collected from the Solving externalities worker’s income, business Providing public goods profits, and consumption of goods and services Purposes: a. government purchase b. transfer payment  Promote PROGRESSIVE TAXATION B equity Considers the actual ability of taxpayers to pay Progressive taxation High-income individuals are Transfer payments imposed with higher tax rates than those low-income Subsidy individuals.  Promote TRANSFER PAYMENTS B equity Money payments to individuals in the form of "aids" or social Progressive taxation programs Transfer payments Serves as a "safety net" to protect the unfortunate Subsidy  Promote SUBSIDY B equity Direct or indirect payments to subsidize the consumption of Progressive taxation low-income groups. Transfer payments Can be provided in the form of cash, tax breaks, or low-rate Subsidy loans  Foster FISCAL POLICY macroeconomic C stability & growth All government expenditures and/or taxes determined by the legislation to achieve low Fiscal Policy unemployment, stable prices, Monetary Policy overall economic growth, by controlling inflation.  Foster MONETARY POLICY macroeconomic C stability & growth Management of total money in circulation and interest rates Controlled by the central bank Fiscal Policy (e.g. Bangko Sentral ng Pilipinas) Monetary Policy Important functions: a. Avoid bank runs b. Increase/decrease money supply Three Economic Functions of the Government To increase economic efficiency To promote equity To foster macroeconomic stability and growth  Thank You! Have a blessed day! For questions and clarifications, feel free to email me at [email protected] or post your questions in our Google Classroom