Public Policy and the Market System

To understand the importance of studying the relationship between government and the price system, it is necessary to first appreciate the close economic ties between government and the economy. In 1986, the average American household furnished more than $14,000 to various government agencies through federal, state and local taxes. During 1985, the combined expenditures of these federal, state and local agencies exceeded $1.4 billion. This represents nearly 40 percent of the net national products, showing that the way in which government decides to allocate resources has a direct and significant effect on the economy as a whole (1).

The authors suggest that there are three effects that government taxation and expenditures can have on the economy: allocation, distribution and stabilization (5-7). Allocation refers to the combination of goods and services produced by the economy as a whole, and allocation c

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able a given quantity of a good at no cost or below the market cost. The consumer has no control over the quantity provided by the government. Generally fixed quantity subsidies are supplemented by consumers paying the market price for the increased quantity (92). Excise subsidies consist of the government paying part of the price of a good, but allowing the quantity of the good to be determined by the consumer. The government may also elect to subsidize only some consumers of a particular product, rather than all consumers. Thus housing subsidies may be available to low-income consumers or to the elderly. Food stamps, unemployment insurance and subsidies for higher education represent three actual government policies that are based on subsidies. The food stamp program was begun in 1961 and grew to more than $12.4 billion in 1984 (125). In order to receive the food stamp subsidy, a household's net income and total assets must be below a certain amount. Food stamps are essentially coupons which can be used to purchase food; the amount of food stamps that a household receives is based on income and the number of people in the household. Food stamps are a fixed quantity subsidy in which poorer families receive more assistan
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Some common words found in the essay are:
Publishing Company, Social Security, Medicare Medicaid, Medicaid Medicare, , social security, income tax, fixed quantity, food stamps, medical care, Jacquelene Browning, nonrival consumption, authors suggest, federal government, fixed quantity subsidies, quantity subsidies, price system, sales excise taxes, finance price system, public finance price, individual income tax,
Approximate Word count = 3694
Approximate Pages = 15 (250 words per page)

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