Goals:

• expalim actions by governemtn to regulate business
• discuss efforts of government to assist business
• identify methods used by governmetn to raise money

Key Terms:

• public utillity
• monopoly
• antitrust laws

4-3 Government Regulation and Assistance

• Regulatory Activities  – business activity in the United States is structured as a private enterprise or a free market system. Private organizations own the factors of production. They chose efficient methods of production so that they earn a profit. Price and output decisions are not made by the government, but by businesses and consumers acting under varying economic conditions.

Government does get involved in some areas of business activities. These include regulating utilities and preventing unfair business practices.

• Regulation of Utilities – most goods and services come from private businesses. For the most part these businesses are free of government regulation.
• Public Utility – an organization that supplies a service or product vital to all people.  
• Chosen to serve a community.
• Most are privately owned and usually closely regulated by the government.
• The rates they charge have to be approved by government agencies
• In recent years there has been a trend toward deregulation of prices where competition can be introduced
• Ex.: Local telephone service, water, electricity and natural gas
• Prevent Unfair Business Practices -  most businesses are fair and honest. A few may try to take advantage of their customers or competitors.
• If a company charges different prices to different people for the same product, it is treating its customers unfairly.
• If one business receives lower rates for the same quality and quantity of supplies than other businesses receive, it has an advantage. Such action may result in unfair competition.
• Monopoly -  when a business has control of the market for a product or service.
• A public utility monopoly may benefit customers by making sure they receive a needed service at a fair price.
• Other monopolies may not be good for the economy.
  • Control all of any segment of the economy
  • Not good for the consumer
  • Dictate prices and selection
  • Not customer driven
• Antitrust Laws – meant to promote competition and fairness and to avoid monopolies
• Also prevents other unfair business practices that hurt competition and reduces consumer choice.
  • False advertising
  • Deceptive pricing
  • Misleading labeling
• Government Assist Business – government helps businesses by collecting and reporting valuable information. Information about incomes, prices, worker availability, and business failures can help businesses make wiser choices.
• Census information can help a business decide where a majority of potential customers live
• Bureau of Labor Statistics
• Department of Agriculture
• Farmers and others may receive financial help  during times of great hardship, i.e. drought, flooding, or other natural disaster.
• Destruction of home and property by a tornado may make a person eligibile
• Department of Commerce
• Small Business Administration (SBA)
• Helps get new businesses started by guaranteeing private bank loans
• New business must develop an acceptable business plan
• These programs are designed to promote the financial well-being in society.
• Government Buys Goods and Services
• Total federal, state and local government spending makes up 20% of all the goods and services produced in the United States
• Governments buy everything
  • File cabinets
  • Buildings
  • Jets
•  Many businesses depend on government contracts for their survival
  • Construct  highways
  • Build schools
• Government Employs Workers
• The government is the single largest employer in the US economy
• About 16% of workers are public employees
  • Fire fighters
  • Police
  • Sanitation workers
  • Administrative assistants
  • Lawyers
  • Meat inspectors
• In spite of efforts to reduce the size of the government, the number of employees working for the government has grown slowly in recent years
• Government Raises Money – the government must have ways to fund its operations and pay its

workers. Governments can obtain money through taxes and borrowing. Additionally, governments can raise money in other ways.

• Fines for traffic violations and other violations of the law
• Fees and licenses
• Business licenses
• Driver’s licenses and hunting and fishing licenses
• Taxes – a government creates tax policies to pay for the services it provides. Taxes may be levied on:
  • Earnings – your earnings are subject to an income tax. Income taxes are levied on the income of individuals. Income taxes are the single largest source of revenue for the federal government
  • Corporate income taxes also provide government revenue. The corporate income taxe is based on business profits.
    • The value of property – a major source of revenue for local

governments is the real estate property tax. Based on the value of land  and buildings. Most property tax revenue is used to pay for schools and other local government services such as police protection and community parks. Businesses also pay a property ax.

• The sale price of goods and services – the cost of buying things is increased by a sales tax.
•  A sales tax is a state or local tax on goods and  services that is collected by the seller.
• Paying taxes is the duty of citizens and businesses. You should pay your taxes, but not more than your share. Tax laws and policies are set up to make paying taxes fair. Whether a particular tax or tax policy is fair is always subject to debate. Businesses pay a lot of taxes to all levels of government.
  • Borrowing – government income from taxes and other sources may not always be enough to cover the costs of providing services. When a government wants to construct a building such as a new courthouse or convention center, the funds needed for construction are often raised by borrowing.
  • Government borrows money by selling bonds. Banks, insurance companies and other financial institutions help finance government by purchasing bonds in large numbers.
  • By borrowing money, the government becomes the debtor and must pay interest on its debt. Bonds are issued by the government and are backed by the “full faith and credit” of the federal government.
  • Bonds issued by the government are considered to be the least risky of all debt.