Costs and Benefits of Government

Part E In what two situations can the government declare a state of emergency?

The government can declare a state of emergency during a natural disaster or for matters of national security.

Arrange the steps in order to show how expansionary fiscal policy affects an economy.

The government lowers the tax rate Consumers and businesses have more money Consumers and businesses spend more money Employment increases Output and prices begin to rise

Part B When can the governor of Georgia institute price controls?

The governor can institute price controls after declaring a state of emergency.

Label the points on the graph to illustrate implementation of the minimum wage.

y-axis : price of labor x-axis: quantity of labor increasing line: supply of labor decreasing line: demand of labor red square: minimum wage

Question 2 Using the information from Georgia's government and your economic knowledge, compose a two- to three-paragraph email message to the governor's economic advisors that analyzes the economic impact of price controls. Your email message should address these points: Why does the government implement price controls? Be creative and come up with a specific example of the two situations you listed in question 1. What types of goods or services do price controls cover? Tailor your response to the situation you are describing. Is this price control a price floor or a price ceiling? Who or what would benefit or be harmed by these price controls? Based on the overall benefit or harm to society and the economy, justify your opinion on whether the price control is a benefit or hindrance to the economy. Be sure to use proper grammar as well as a topic sentence and introductory and concluding statements.

After a natural disaster, such as a major hurricane, there is increased demand for gasoline, lumber, bottled water, clothing, and other essential goods as people try to replace and rebuild what was lost. At the same time, the supply of these goods likely decreases because of disruptions to factories and transportation. Under normal market conditions, producers would raise their prices at the first sign of trouble, both to offset their own losses from the disaster and to obtain optimal profits. However, people who have lost everything need to start rebuilding as soon as possible at a price they can afford to pay. The sooner the community is rebuilt and back to normal, the sooner the local economy will return to normal for both consumers and producers. For this reason, I think the government should introduce price ceilings on essential goods during a disaster. Many people would not be able to buy the goods they need without price ceilings. Although producers lose out on maximizing their profits, their actual losses are limited because they are allowed to raise prices to cover production and transportation costs driven up by the disaster. Because citizens benefit so greatly from them, I think emergency price ceilings are beneficial to the economy as long as producers do not suffer significant losses from them.

Part D What is the maximum price businesses may charge for specific goods during a state of emergency?

Businesses may not sell any of the specified goods or services at prices higher than the prices at which those same goods or services were offered before the declaration of a state of emergency.

Part F Who could benefit from these price controls?

Consumers and the government could benefit from price controls.

Read the following scenarios, and then answer the question that follows. Scenario 1 In the past year, country X has seen factories close and GDP fall dramatically. As a result, many people have lost their jobs. Prices of basic goods have also risen significantly. Fewer students are enrolling in college because more unemployment means less money to pay for classes. Scenario 2 Country Y has seen its GDP increase steadily over the past 18 months, and more people have been getting jobs. Prices for items such as food and clothing have been stable during this period, and college enrollment is increasing as more people have jobs and can pay for school. How does the economic health of countries X and Y compare?

Country X does not have a healthy economy. The prices for basic goods have increased. Fewer people in country X have jobs, and output has fallen along with the country's GDP. These events have led to fewer people being able to afford college. On the other hand, country Y has a healthy economy. Its output as shown by GDP is increasing. The prices are fairly stable in country Y. More people have jobs, and they have an opportunity for higher education.

Part G Who could be harmed by these price controls?

Price controls may harm businesses and eventually consumers because the quality of goods could suffer in the future.

Part C Which types of goods and services can be targeted for price controls?

Food, lodging, gasoline, propane gas, lumber, and other supplies can be targeted with this action.

Question 2 Using information from the news article you read and your knowledge of economics, compose a paragraph in response to the article. Your comment on the article should state your opinion on government intervention. Use economic analysis to guide your opinions. In your writing, be sure to use proper grammar as well as a topic sentence and introductory and concluding statements.

I commend the governments of Peachtree City and Fayette County for their recent intervention, which will be beneficial to our economy. Earlier, the city reduced the water level in the lake so that people who live on the lake could maintain the shoreline. When the council started to refill the lake, city staff noted problems with the dam and spillway and brought it to the attention of Fayette County. There were financial constraints to completing this project, but the Peachtree City government decided to spend additional money to finish the project. That was the right course of action. The residents' properties (and property values) have been restored, and the lake will once again draw visitors to the town to enjoy the lake and spend money in our town's businesses.

Read the following scenarios, and then answer the question that follows. Scenario 1 The economy has been in a downfall for two years. The number of people who are cyclically unemployed has dramatically increased as output measured by GDP has fallen. Consumers and businesses are buying less, causing output to fall even more, which increases unemployment. The government invests millions of dollars in infrastructure projects. As a result, the unemployment rate starts to decrease and the GDP begins to increase. Scenario 2 After a period of economic growth, consumers are seeing sharply increased prices on nearly all goods and services. Unemployment is at its natural rate, with millions of people working overtime for several weeks, which increases output sharply and quickly. The government decides to slightly increase tax rates. A year later, prices and output fall and stabilize. What is the difference in how the government reacted in these two situations?

In the first situation, the government spent millions of dollars on infrastructure projects, which put people to work and resulted in economic growth. In the second situation, the government increased taxes, which helped reduce prices and stabilize the economy.

Question 2 Using the information from Georgia's government and your economic knowledge, compose a two- to three-paragraph email message to the governor's economic advisors that analyzes the economic impact of price controls. Your email message should address these points: Why does the government implement price controls? Be creative and come up with a specific example of the two situations you listed in question 1. What types of goods or services do price controls cover? Tailor your response to the situation you are describing. Is this price control a price floor or a price ceiling? Who or what would benefit or be harmed by these price controls? Based on the overall benefit or harm to society and the economy, justify your opinion on whether the price control is a benefit or hindrance to the economy. Be sure to use proper grammar as well as a topic sentence and introductory and concluding statements.

My example: As Georgia's economic advisors for the governor, price controls are not a new topic. Price controls are beneficial to the economy but can have costs to them if not implemented correctly. Most often, price controls are implemented after the governor declares a state of emergency in response to or in anticipation of a natural disaster or a national security emergency. During the state of emergency and afterward, food, lodging, gasoline, propane gas, lumber and other supplies are in increased demand. Because of the need to rebuild, replace, and prepare for inflation, people try to stock up on these supplies. However, the supply of these goods and services usually decreases as industries and transportation cannot support enough employees or funding to produce as much goods and/or services. Under the conditions of the state of emergency, a price ceiling would needed to be implemented. Producers tend to raise prices to offset their own losses and maximize their profits. Under the current situation, consumers need to rebuild and replace things for a price that they can afford. Without an affordable price, consumers spend less, meaning demand goes down, therefore making businesses produce less. Businesses then have to layoff some employees, increasing unemployment. This brings down the economic health. For this reason I believe that Georgia's governor should implement price ceilings on necessities. Consumers need to buy goods, but without price ceilings many cannot afford it. Although producers may be disadvantaged by this, this will increase demand for products and limiting losses in the long run. Since the economy as a whole will hypothetically have a huge benefit from implementing price controls. It will be an overall pro for societies and economies. As long as significant losses and downfall does not happen, price controls are overall beneficial. It provides a guiding hand for the government to the economy and government/state.

Question 1 Read about the Georgia's price control policies. Then answer the following questions about emergency controls in the state. Part A Using an online dictionary, define the term "price gouging."

Price gouging occurs when sellers dramatically increase the prices of essential goods in response to greatly increased demand, such as occurs after a natural disaster.

Activity In this activity, you will use your understanding of economic concepts to analyze a real-life economic issue and suggest possible remedies for the situation. Question 1 Using an online local news source, such as the website of your local newspaper or television newscast, find an economic issue that your community is facing and complete the following chart.

Sample Answer: The Citizen Council OKs $100,000 for Dam and Spillway June 7, 2015 cost of dam and spillway repairs spending additional $100,000 for repairing a dam and spillway economic development the people of Peachtree City nobody is harmed by this action

Think about the possible costs and benefits of government intervention in this situation. A country's economy has not seen economic growth in the past two years. In fact, last year the GDP fell, unemployment rose, and consumers were nervous that their paychecks wouldn't be enough to cover their usual purchases and bills in the coming months. Then the government decided, in the hope of getting the economy going again, to spend billions of dollars on infrastructure projects such as road repair and high-speed rail installation. It also reduced taxes in an effort to give people more money. However, because the government is spending money on projects and has less money coming in because of the lower tax rates, several government programs have had their funding reduced and the country's debt has increased. Should the government have intervened in the economy as it did? Justify your response.

You may have agreed or disagreed with the government intervention. Here is one possible response: Yes, the government needs to take such steps during an economic crisis. Although the government's actions increase the country's debt and leads to a reduction in spending, its aim is to help the general populace cope with the situation. Without the government's help, people would not be able to make their usual purchases and pay their bills. The GDP would then drop further because of a fall in consumer demand. Similarly, companies would need to lay off workers because of the decreased demand for consumer goods, which would further increase unemployment.

Through the Recovery Act, the federal government transferred money to ____, which could then develop local projects to increase employment and output. In Fresno, stimulus money was used to assist ___ businesses and keep them open.

local governments small

frictional inflation economic stability macroeconomics cyclical

the type of unemployment experienced by students who an increase in the general price level consistent growth combined with low inflation the study of the economy as a whole the type of unemployment that occurs when the economy is in a downturn