CHAPTER 11
THE ROLE OF
GOVERNMENT IN
BUSINESS
HOW GOVERNMENT AFFECTS
BUSINESS
• Created laws to regulate business
• Protects both business and the public from unfair,
unsafe, and unethical business practices
• Fosters economic success
GOVERNMENT AS REGULATOR
• 3 levels of government
– Federal – runs the country
– State – runs individual states
– Local – runs cities and counties
• Each level oversees a different level of business
– Federal – focuses on business that takes place across all states
• Interstate commerce
– State – focuses on business within each state
• Intrastate commerce
PROTECTING COMPETITION
• Oligopoly – when a small number of companies control the market without actually
forming a trust
• Monopoly – “one seller”; when one company controls an entire industry
– Doesn’t have to compete with other companies
– Can charge anything it wants for a product
• Trust – when rival companies band together and agree not to compete with each
other
• Antitrust laws – allow the government to break up monopolies, regulate them, or
take them over
– FTC – Federal Trade Commission; formed by the government to regulate interstate trade
• Sets standards for honest advertising
PROTECTING BUSINESS
AGREEMENTS
• Contracts – a legal agreement between two or more parties to
conduct business
– Can be written, verbal, or even by actions (ex. handshake)
– Protects all the parties that agree to it
• Rental agreement
• Car insurance policy
• Warranty on a product
– Breach of contract – when one party fails to live up to the terms of a contract
PROTECTING CREATIVE PROPERTIES
• Creative properties – inventions, artwork, movies, music,
writings
• Copyright – gives artists sole right to own their creations
– Plays, photos, music, paintings, books
– Anyone who wants to print or use the work in any way must get
permission from the creator of the product
– Lasts until the creator’s death plus 70 years
• Ex. Michael Jackson vs Paul McCartney; photographer selling cds
• Patent – gives you the sole right to own an invention
• Trademark – a brand name, trade name, trade
characteristic, or combination of these that is given legal
protection by the federal government
REGULATING THE PRODUCTION
PROCESS
• Tries to stop industrial pollutants with regulations
• Regulations limit the amount of waste that factories can discharge into the
environment
• Federal environmental regulations are often not enforced so state and local
communities have to take responsibility for regulating pollution to the water
and air.
Research a company that has been in trouble for their waste that is damaging
the environment. What were there violations and how did they fix them? What
were the consequences of their violations?
GOVERNMENT AS PROVIDER
• Provides highways, bridges, water treatment
plants and other goods and services that we
can’t buy.
• Passes and enforces laws
• Provides important services, conducts
business itself, acts as a partner to business
• In our democratic system, people make their
collective wants known through elected
officials.
• Government tries to satisfy as many of these
wants as possible while considering public
welfare.
*Research and see how many
employees the federal
government employs.
• Most government funds come from taxes
that people and businesses pay.
– Income tax, sales tax, etc.
• Government officials determine how much
money will be spent.
• The idea behind taxes is to pay for public
goods and services and to share the cost
among many people.
• Some people may not receive direct benefits
from their tax money but the services
provided add value to the community.
– Fire department, police department, public
schools, etc.
GOVERNMENT AS PROVIDER, CONTINUED.
• People who use public goods and services
usually don’t directly pay the full cost.
– City parks, libraries don’t usually charge
an entrance or membership fee.
– Public health services charge fees that are
way below the costs.
• Government uses tax money to make up
the difference between the actual costs of
these goods and services and the amount
that is charged to the public.
• Government spending decision directly
affect how resources are allocated.
– Economic activity is stimulated where the
resources are allocated.
• Government spending also influences the
distribution of income or the way in which
income is allocated among families,
individuals, or other designated groups in
the economy.
• Incomes of needy families can be directly
affected by increasing or decreasing
transfer payments.
• Government can provide temporary
income support for selective groups.
– Ex. In 1999, the Department of
Agriculture purchased millions of pounds
of pork in an attempt to support low
pork prices for farmers.
PROVIDING PUBLIC SERVICES
• The government is the single largest provider of
services in the country
– Spends most on transfer money, such as
welfare and unemployment compensation
– Government services protect the public
• Military
• Police
• Fire department
– Government services promote social
welfare
• Parks
• Libraries
– Government provides
• Public education
• Roads
• Courts
• Post offices
• Countless other services
• Costs of providing all of these services is
enormous
– Government must raise money
– Money coming in is called revenue
• Main source for government is taxes
• Federal income tax is used to pay for
national highways, defense, and social
security
• Local taxes pay for streets, libraries, and
parks
– Local, state, and federal taxes fund public
education
PROVIDING WORK
• Government is the single largest employer in
the country
• Public employees include
–
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–
–
–
–
–
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Local mayor
Courthouse clerks
Mail carriers
President of the US
Military
Teachers
Bus drivers
Police
Trash collectors
Fire fighters
• Government provides other benefits
– Unemployment insurance for people
temporarily out of work
– Welfare benefits
– Job training programs for those who have
trouble finding work
• Social security provides future retirement
benefits
– Pay as you work
ASSISTING BUSINESS
• Government is the single largest consumer of goods and services
– Buy computers, furniture, school supplies, government office supplies
– Military need uniforms, food, ships, aircraft, and weapons
• Government buys directly from businesses or has it specially made
• Government hires businesses to build courthouses, schools and roads
• Small Business Administration (SBA) is a government program to provide loans for small
business owners
• Government lends money to big businesses that are in financial trouble (bail outs)
• Government even lends money to foreign countries to help build up their economies to
create new markets for American goods
PROTECTION FROM UNFAIR FOREIGN
COMPETITION
• Trade barriers
• Government provides subsidies to businesses trying to compete with foreign
companies
• Subsidies are payments the government gives to businesses to make up for their
losses
• To encourage socially responsible behavior, government offers tax incentives
– Tax incentives are reductions in taxes
– Oil companies that lower the amount of pollution they cause are rewarded with lower taxes
– Tax breaks are also given to companies that conserve energy or use alternative sources of fuel
• Businesses that do community development can consist of donating profits to local
schools or setting up a business in a poor area to create jobs