Public and Private Goods

Government functions can be traced to fundamental differences betweenprivate goods and public goods. Private goods are so-called because they are subject to private ownership and can be efficiently exchanged throughmarkets. They are characterized by rival consumption (consumption by one person prevents consumption by another) and excludability (people who do not pay can be prevented from gaining access to the good). Public goods, by way of contrast, cannot be efficiently traded through markets. They are termed public goods because governments (or thepublic sector) are responsible for their efficient provision. The term public good can be narrowly defined to include goods characterized by nonrival consumption (consumption by one person does not prevent consumption by another) and nonexcludability (people who do not pay cannot be prevented from gaining access to the good).
On occasion, the term public good is also more generally used to include two other goods that have one, but not both of these characteristics.Near-public goods have nonrival consumption, but excludability. Common-property goods have rival consumption, but nonexcludability. All three types of goods--public goods (pure), near-public goods, and common-property goods--can be efficiently produced and allocated only through government involvement. The nature of these goods help to explain the basic functions of government.

EXTERNALITIES
Definition: An externality is an effect of a purchase or use decision by one set of parties on others who did not have a choice and whose interests were not taken into account. Classic example of a negative externality: pollution, generated by some productive enterprise, and affecting others who had no choice and were probably not taken into account. Example of a positive externality: Purchase a car of a certain model increases demand and thus availability for mechanics who know that kind of car, which improves the situation for others owning that model.

OR A consequence of an economic activity that is experienced by unrelated third parties. An externality can be either positive or negative.
Pollution emitted by a factory that spoils the surrounding environment and affects the health of nearby residents is an example of a negative externality. An example of a positive externality is the effect of a well-educated labor force on the productivity of a company.

DUTCH DISEASE
Negative consequences arising from large increases in a country's income. Dutch disease is primarily associated with a natural resource discovery, but it can result from any large increase in foreign currency, including foreign direct investment, foreign aid or a substantial increase in natural resource prices. Dutch disease has two main effects: 1. A decrease in the price competitiveness, and thus the export, of the affected country's manufactured goods 2. An increase in imports In the long run, both these factors can contribute to manufacturing jobs being moved to lower-cost countries. The end result is that non-resource industries are hurt by the increase in wealth generated by the resourcebased industries. The term "Dutch disease" originates from a crisis in the Netherlands in the 1960s that resulted from discoveries of vast natural gas deposits in the North Sea. The newfound wealth caused the Dutch guilder to rise, making exports of all non-oil products less competitive on the world market. In the 1970s, the same economic condition occurred in Great Britain, when the price of oil quadrupled and it became economically viable to drill for North Sea Oil off the coast of Scotland. By the late 1970s, Britain had become a net exporter of oil; it had previously been a net importer. The pound soared in value, but the country fell into recession when British workers demanded higher wages and exports became uncompetitive.

WASHINGTON CONSENSUS
This is the set of 10 policies that the US government and the international financial institutions based in the US capital believed were necessary elements of first stage policy reform that all countries should adopt to increase economic growth. At its heart is an emphasis on the importance of macroeconomic stability and integration into the international economy - in other words a neo-liberal view of globalization. The framework included:

Fiscal discipline - strict criteria for limiting budget deficits Public expenditure priorities - moving them away from subsidies and administration towards previously neglected fields with high economic returns

Tax reform - broadening the tax base and cutting marginal tax rates Financial liberalization - interest rates should ideally be market-determined Exchange rates - should be managed to induce rapid growth in non-traditional exports

Trade liberalization Increasing foreign direct investment (FDI) - by reducing barriers Privatization - state enterprises should be privatized Deregulation - abolition of regulations that impede the entry of new firms or restrict competition (except in the areas of safety, environment and finance)

Secure intellectual property rights (IPR) - without excessive costs and available to the informal sector

Reduced role for the state. These ideas proved very controversial, both inside and outside the Bretton Woods Institutions. However, they were implemented through conditionality under International Monetary Fund (IMF) and World Bank guidance. They are now being replaced by a post-Washington consensus.

GEEB
1)REDISTRIBUTION
income redistribution occurs in some form in most democratic countries. Progressive income redistribution diminishes the amount of income one individual or corporation receives, while at the same time benefitting others. Two popular types of governmental redistribution of wealth are Subsidies and Vouchers (such as food stamps).

Types of Redistribution

Equity of endowment Equity in process Equity in outcomes

2) THE STABILIZATION FUNCTION

Unemployment

frictional unemployment structural unemployment cyclical unemployment

The business cycle

Trough Expansion Peak Recession.

3) Regulatory function
consumer protection environment health labor transportation communication

Definition of 'Shock Therapy'

A sudden and dramatic change in national economic policy that turns a state-controlled economy into a free-market one. Characteristics of shock therapy include the ending of price controls, the privatization of publicly-owned entities and trade liberalization. Shock therapy is intended to cure economic maladies such as hyperinflation, shortages and other effects of market controls in order to jump-start economic production, reduce unemployment and improve living standards.

Real Estate Tax

Real estate taxes, also known as property taxes, are taxes imposed on real estate by a government for services rendered. The taxes are usually based on the relative value of the property. The more expensive the property, the higher the real estate taxes will be for that property. Property taxes are usually charged on a recurrent basis (e.g., yearly). A common type of property tax is an annual charge on the ownership of real estate, where the tax base is the estimated value of the property.