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—sole right to own an invention
• Trademark—brand name, trade name, trade characteristic, or a combination
of these that is given legal protection by the federal government
– Examples: VISA®, Doritos ®, Rice Krispies Treats ®
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.
**Assignment: Conduct some research to identify a company who has been in
trouble because of their waste that is damaging to the environment. Describe
their violations and how they fixed it? What were the consequences for their
waste issues?
GOVERNMENT AS PROVIDER
• Provides highways, bridges, water
treatment plants and other goods and
services that we can’t buy.
• Most government funds come from taxes
that people and businesses pay.
• Passes and enforces laws
• Government officials determine how much
money will be spent.
– Income tax, sales tax, etc.
• 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.
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 • Government spending also influences the
usually don’t directly pay the full cost.
distribution of income or the way in
– City parks, libraries don’t usually charge an
entrance or membership fee.
– Public health services charge fees that are way
below the costs.
which income is allocated among families,
individuals, or other designated groups in
the economy.
• Government uses tax money to make up • Incomes of needy families can be directly
the difference between the actual costs of
affected by increasing or decreasing
these goods and services and the amount
transfer payments.
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 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
PROVIDING PUBLIC 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
– 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