The Economic

Functions of
Government

Council for Economics Education

&
Henry B. Stobbs, MFA
Copyright Notice
 Original Content 2008 Council for
Economic Education and modified for
classroom use by the author. Certain
materials in this presentation are prepared
with the fair use exemption of the U.S.
Copyright Law and have been prepared with
the multimedia fair use guidelines and are
restricted from further use.
Concepts
 Competition
 Economic stabilization
 Externality
 Income redistribution
 Public goods & services
Standards (NCEE)
 Standard 16: There is an economic role for
government in a market economy
whenever the benefits of a government
policy outweigh its costs. Governments
often provide for national defense,
address environmental concerns, define
and protect property rights, and attempt
to make markets more competitive. Most
government policies also redistribute
income.
Standards (NCEE)
 Standard 20: Federal government
budgetary policy and the Federal reserve
System’s monetary policy influence the
overall levels of employment, output, and
prices.
Standards (NSCG, Grades 9
– 12)
 I.B.4: The relationship of limited
government to political and economic
freedom.
 II.C.2: Character of American political
conflict.
 III.B.2: Major responsibilities of the national
government in domestic and foreign
policy.
Objectives
As a result of this lesson, you will be able to:


1.Classify government economic activities

according to the six economic functions
of government.
2.Analyze governmental economic actions
within the liberal
(progressive)/conservative framework.
Purpose
 The purpose of this lesson is to
examine the economic functions of
government.
Six Economic Functions of
Government
1.Maintain the legal and social
framework
2.Maintain competition
3.Provide public goods and
services
4.Correct for externalities
5.Stabilize the economy
6.Redistribute income
◦

Six Economic Functions of
Government
1.Maintain the legal and social
framework
◦ Define and enforce property
rights
◦ Establish a monetary system
◦

Six Economic Functions of
Government
1.Maintain the legal and social
framework
2.Maintain competition
◦ Create and enforce antitrust
laws
◦ Regulate natural monopolies

Six Economic Functions of
Government
1.Maintain the legal and social
framework
2.Maintain competition
3.Provide public goods and services
◦ Public goods and services are
those that markets will not
provide in sufficient quantities

Six Economic Functions of
Government
1.Maintain the legal and social
framework
2.Maintain competition
3.Provide public goods and services
4.Correct for externalities
◦ Reduce negative externalities
◦ Encourage increased production
of goods and services that
have positive externalities

Six Economic Functions of
Government
1.Maintain the legal and social framework
2.Maintain competition
3.Provide public goods and services
4.Correct for externalities
5.Stabilize the economy
◦ Reduce unemployment and inflation
◦ Promote economic growth

Six Economic Functions of
Government
1.Maintain the legal and social
framework
2.Maintain competition
3.Provide public goods and services
4.Correct for externalities
5.Stabilize the economy
6.Redistribute income
◦ Redistribute income from people
who have higher incomes to
those with lower incomes

Six Economic Functions of
Government
1.Maintain the legal and social
framework
2.Maintain competition
3.Provide public goods and
services
4.Correct for externalities
5.Stabilize the economy
6.Redistribute income
◦

Activity Time
 Please, assume your team configurations!
Classify the Headlines
1.Federal Reserve Raises Key Interest Rate ___
2.Congress Raises tax rates for Top Income
Brackets ___
3.EPA Plan to Reduce CO₂ Emissions ___
4.Homeland Security Funding Increased ___
5.President Says More Spending Will Fight
Recession ___
6.Agency Blocks merger of Two Airlines ___
7.City Police Increase Neighborhood Patrols ___
8.Lawsuit Establishes Patent Rights ___
9.Legislature Passes Funding for Subsidized
Housing ___
10.New Info from Government Agency Helps
Consumers Choose Wisely ___
11.Songwriter Sues Singer: Says Songs Stolen ___
12.County Funds Free Flu Vaccinations ___
Let’s Check!
1.Federal Reserve Raises Key Interest Rate E
2.Congress Raises tax rates for Top Income
Brackets F
3.EPA Plan to Reduce CO₂ Emissions D
4.Homeland Security Funding Increased C
5.President Says More Spending Will Fight
Recession E
6.Agency Blocks merger of Two Airlines B
7.City Police Increase Neighborhood Patrols C
8.Lawsuit Establishes Patent Rights A
9.Legislature Passes Funding for Subsidized
Housing F
10.New Info from Government Agency Helps
Consumers Choose Wisely B
11.Songwriter Sues Singer: Says Songs Stolen A
12.County Funds Free Flu Vaccinations D
Conservative Perspectives

versus

Progressive Points of View

CONSERVATIVE
PERSPECTIVE
 Government’s economic role is
severely limited
 Economic and political freedom
undermined by excessive reliance
on government
 The government’s ability to solve
social and economic problems is
weak
 Faith in government to solve
problems is unreasonable
Progressive (Liberal)
Perspective
The market’s ability to solve
complex social and economic
problems is limited
Government can do a great deal to
overcome weaknesses in the
marketplace
Less concerned with the effects of
government action on personal
liberty
The price system is unfair
Support income redistribution
Time for Another Activity

E co n o m ics is so o o o d re a m y!
Legislature Passes Funding for
Subsidized Housing
 Let’s re-examine this headline. What
would a progressive think of it? How would
a conservative regard it?
Discussion Time
Time to Review
Assessment
Assessment
1.Public goods and services are
a)All goods and services paid for by the
government
b)Goods and services provided by
publicly held companies
c)Goods and services that would not be
adequately provided by the market.
d)Goods and services that are available
to the public.
Assessment
2.Establishing and enforcing clearly defined
property rights is an example of
government
a)Providing a social and legal
framework.
b)Maintaining competition
c)Providing public goods and services
d)Redistributing income
Assessment
3.Smoke from a factory drops ash all over
your car. Government’s economic
function in this case is to:
a)Stabilize the economy
b)Maintain competition
c)Provide public goods and services
d)Correct a negative externality.
Assessment
4.The Federal trade Commission
recommends that the Smokin’ Hot
Computer Corporation be broken into
several smaller, independent
companies. This is an example of the
government’s function of:
a)Maintaining competition
b)Redistributing Income
c)Maintaining the Legal and Social
framework
d)Providing public goods and services
Assessment
5.The fed announced today that it will cut a
key interest rate by two basis points.
This is an example of the government’s
function to
a)Correct for externalities
b)Stabilize the economy
c)Redistribute income
d)Maintain the legal and social
framework
Assessment: Extended
Response
6.Federal regulations now require Internet
radio stations to pay substantial royalty
fees (fees to artists and songwriters) fr
the music they play. Some stations
were not able to pay the fees and have
gone “off the air.” What economic
function of government is this an
example of? Who benefits from the
regulation? How? Why? Who loses
because of the regulation? How? Why?
What argument would you make for
and against the regulation?
Assessment Check
 Please trade papers with someone
outside your team.
Assessment Check
1.Public goods and services are
a)All goods and services paid for by the
government
b)Goods and services provided by
publicly held companies
c)Goods and services that would not be
adequately provided by the market.
d)Goods and services that are available
to the public.
Assessment Check
2.Establishing and enforcing clearly defined
property rights is an example of
government
a)Providing a social and legal
framework.
b)Maintaining competition
c)Providing public goods and services
d)Redistributing income
Assessment Check
3.Smoke from a factory drops ash all over
your car. Government’s economic
function in this case is to:
a)Stabilize the economy
b)Maintain competition
c)Provide public goods and services
d)Correct a negative externality.
Assessment Check
4.The Federal trade Commission
recommends that the Smokin’ Hot
Computer Corporation be broken into
several smaller, independent
companies. This is an example of the
government’s function of:
a)Maintaining competition
b)Redistributing Income
c)Maintaining the Legal and Social
framework
d)Providing public goods and services
Assessment Check
5.The fed announced today that it will cut a
key interest rate by two basis points.
This is an example of the government’s
function to
a)Correct for externalities
b)Stabilize the economy
c)Redistribute income
d)Maintain the legal and social
framework
Assessment Check

Federal regulations now require
Internet radio stations to pay substantial
royalty fees (fees to artists and
songwriters) for the music they play.
Some stations were not able to pay the
fees and have gone “off the air.” What
economic function of government is this
an example of? Who benefits from the
regulation? How? Why? Who loses
because of the regulation? How? Why?
What argument would you make for and
against the regulation?

Assessment Check
 These regulations are an example of
government policy aimed at establishing and
enforcing property rights. The protection of
property rights is an element of the legal and
social framework government establishes. In this
case, singers and songwriters benefitfrom the
legal protection in question; the regulation
maintains their property rights and their incentive
to produce music. Radio station operators and
listeners lose, because there are fewer Internet
radio stations and less choice for listeners.
Homework

Many city governments subsidize
the construction of sports stadiums
as a way to attract or hold on to
sports teams.
 First, write an argument for this
practice, using the economic
functions of government to support
your claim. Thenpresent an
alternative view, arguing against
your initial claim. (20 points, plus up
to 3 extra if submitted via Google
Documents)
Works Cited
 Council for Economic Education. “Lesson 4:
What Are the Economic Functions of
Government?” 2008 Council for Economic
Education.