Authors libby rittenberg 104
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The production possibilities model provides a menu of choices among
alternative combinations of goods and services. Given those choices, which
combinations will be produced?
In a market economy, this question is answered in large part through the
interaction of individual buyers and sellers. As we have already seen,
government plays a role as well. It may seek to encourage greater
consumption of some goods and discourage consumption of others. In the
United States, for example, taxes imposed on cigarettes discourage
smoking, while special treatment of property taxes and mortgage interest
in the federal income tax encourages home ownership. Government may
try to stop the production and consumption of some goods altogether, as
many governments do with drugs such as heroin and cocaine. Government
may supplement the private consumption of some goods by producing
more of them itself, as many U.S. cities do with golf courses and tennis
courts. In other cases, there may be no private market for a good or service
at all. In the choice between security and defense versus all other goods
and services outlined at the beginning of this chapter, government
agencies are virtually the sole providers of security and national defense.
All nations also rely on government to provide defense, enforce laws, and
redistribute income. Even market economies rely on government to
regulate the activities of private firms, to protect the environment, to
provide education, and to produce a wide range of other goods and
services. Government’s role may be limited in a market economy, but it
remains fundamentally important.
KEY TAKEAWAYS
Attributed to Libby Rittenberg and Timothy Tregarthen
Saylor URL: />
Saylor.org
104
