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UNIT 7The Role of Government in aMarket Economy (8 days)

UNIT 7 - THE ROLE OF GOVERNMENT IN A MARKETECONOMY (8 Days)All teaching resources in this document are free for teachers. Here is how to you access them:1. Many are hyperlinked in the document, so you can get started right away. 2. Lessons that do not have a hyperlink can be found on the lesson plan resource calledVirtual Economics 4.5 or 5.0 (VE). All teachers can and should get this resource for freeby participating in a VCEE training session. Visit www.vcee.org for more information.3. Lessons from Financial Fitness for Life are on VE. They also have educationaltechnology tools that can be found here:https://www.econedlink.org/resources/collection/fffl-9-12/One of the most important functions of our government - one that enables our market economyto operate smoothly in an imperfect world - is the government’s enforcement of private propertylaws. There is also a role for government in areas where markets are inefficient or fail to providethe goods and services that people require and many want.EPF.8 The student will demonstrate knowledge of the role of government in a marketeconomy bya) identifying goods and services provided by government to benefit societyDay 1 Public goods and servicesDay 2 Expanding the definition of public goodsDay 3 Tragedy of the commonsEPF.8 The student will demonstrate knowledge of the role of the government in a marketeconomy byb) identifying the role the government plays in providing a legal structure to protect propertyrights and enforce contractsDay 1 Protecting private property and enforcing contractsEPF.8 The student will demonstrate knowledge of the role of the government in a marketeconomy byc) providing examples of government regulation of the marketDay 1 Government regulation and market failuresEPF.8 The student will demonstrate knowledge of the role of the government in a marketeconomy byd) explaining that governments redistribute wealthEPF.16 The student will demonstrate knowledge of taxes byb) exploring how tax structures affect consumers, producers, and business owners differently.Day 1 Transfer programs and tax structures1Virginia Council on Economic Education

EPF.8 The student will demonstrate knowledge of the role of the government in a marketeconomy bye) explaining that taxes and fees fund all government-provided goods and servicesEPF.16 The student will demonstrate knowledge of taxes bya) describing the types and purposes of local, state, and federal taxes and the way each islevied and used.Day 1 Where does the money come from and where does it go?Evaluation Day2Virginia Council on Economic Education

EPF.8 The student will demonstrate knowledge of the role of government in a marketeconomy bya) identifying goods and services provided by government to benefit societyDay 1 - Public goods and servicesContent KnowledgeMost economic decisions in the United States are made in the marketplace—what is frequentlyreferred to as the private sector. However, students need to also realize that government has arole in the economy, often providing goods and services that would not or could not beadequately or equitably provided in a market economy due to the unusual characteristics of thegood or service. These “public goods” make us better off but would not otherwise be provided bythe private sector.There is an economic role for government to play in a market economy whenever the benefits ofa government policy outweigh its costs. Governments often provide for national defense, addressenvironmental concerns, define and protect property rights, and attempt to make markets morecompetitive.2Why does government pay private construction firms to build roads and highways? Why do thefirms that build the roads not own them themselves and charge tolls to users? All kinds of goodsand services are produced and distributed through private markets, so why not roads andhighways, too? In flipping through the pages of the telephone directory, we observe a vast arrayof businesses and government agencies. Why do markets work well to supply much of what wewant, while failing to produce other things we want?2The section on Market and GovernmentFailure in Nexus: Connections between Economics and Civics provides excellent teacherbackground on these topics.3Students should understand the limitations and shortcomings of both markets and governmentpolicies. Learning the economic as well as the political and social reasons for public sectorservices helps citizens make better choices.2Virginia Board of Education FrameworkThe government provides goods and services such as military protection, street lights, and policeprotection. These goods and services may not be provided by the private sector because it wouldnot be profitable for them to do so when non payers might enjoy the benefits.Though schools, roads, and fire protection can be provided by the private sector, the governmentgenerally provides them as these services benefit society as a whole. An educated public benefitsthe whole society. Roads facilitate trade. If one person’s house burns and the fire departmentrefuses to come due to nonpayment, neighboring houses may also catch fire.3Virginia Council on Economic Education

Governments may provide an alternative method to supply goods and services when the benefitsto society of doing so outweigh the costs to society.Teaching Tips1) Students have trouble distinguishing between private and public goods. Identify private goodsas "me only" goods, that is, only the person who pays receives benefits from the goods. Identifypublic goods as "shared" goods meaning that many people can benefit whether or not they paidfor the goods.3Brainstorm a list of goods and services (such as schools, police protection, roads,parks, etc.) not usually privately (“me only”) produced.22) To introduce this section, the teacher may want to use the circular flow of goods and services,introduced in EPF.2j. In that version, the circular flow diagram showed the way in whichresources, goods and services, and money flow among households and businesses. Brieflyreview these concepts, but do not include government into the flow yet.Ask students to name services or products that they use or consume that are not provided byprivate businesses. (Students will provide various answers including some of the following:parks, police services, schools, libraries, defense, etc.) Tell them they are known as public goodsand public services. Ask them how these services are provided and how the resources aregathered to make them available. They should reply that government provides them and they arepaid for with taxes.Redirect student attention to the circular flow. The easiest way to add government to the flow isto draw a new sector in the middle of the circle and label it “government.” The instructor cannow begin to add lines to indicate the flow of resources, goods and services and payments. Askstudents how to indicate the flow of public goods and services to households and firms. (Linescan be drawn directly from government to households and firms. Payment (tax) lines can bedrawn directly from households and firms to government.) Ask students how resources andintermediate goods are provided to government. (Lines can be drawn directly from householdsand firms to government. Payment lines can be drawn directly from government to householdsand firms.)Lessons and ResourcesFocus: Understanding Economics in Civics and Government Lesson 4: What are the EconomicFunctions of Government?Old MacDonald to Uncle Sam: Lesson Plans from Writers Around the World Lesson 2: Goodsand Services: Some Are Private, Some Are NotEconEdLink Lesson: No Fireworks on the 4thof Julyhttps://www.econedlink.org/resources/no-fireworks-on-the-4th-of-july/4Virginia Council on Economic Education

Day 2 – Expanding the definition of public goodsContent KnowledgeOnce the idea that government provides goods and services is established on Day 1, Day 2 isspent delving more deeply into the concept of public goods. How do we know which goods andservices are best provided by the government? Two concepts that can help us answer thatquestion are the ideas of non-exclusion and shared consumption. Non-exclusion means that it isdifficult to exclude non-payers from receiving the benefit of a good or service. Sharedconsumption means that the consumption of a good or service by one consumer does not reducethe benefit to other consumers.When people can obtain a good or service whether they pay for it or not, they have less incentiveto pay. If consumers have no incentive to pay the costs, then producers will have little incentiveto provide the benefits. As a result, such goods and services will not be produced despite the factthat everyone wants them. This explains why the role of government is so important.Government can provide goods and services when it is difficult to exclude non-payers and whenthe product or service involves shared or non-rival consumption. Through taxation, governmentcan require all citizens to pay for their share so no one gets a “free” good or service. Forexample, everyone desires police protection. However, because it is difficult to exclude peoplefrom the benefits of police protection, government supplies the service to everyone, andeveryone pays for it through taxation.VocabularyPublic goods – Goods and services, provided by the government, that provide benefits to morethan one person at a time (non-excludable), and their use cannot be restricted to only thosepeople who have paid to use them (non-rival in consumption).2Excludable – A good or service for which payment must be made before use. A movie at atheater is an excludable good. A scenic view from a highway is not.Rival – A good or service which, if consumed, prevents another from consuming it. A chocolatebar is a rival good. A radio broadcast is not.Free rider – One who enjoys the benefits of a good or service without paying for it.Virginia Board of Education FrameworkThe government provides goods and services such as military protection, street lights, and policeprotection. These goods and services may not be provided by the private sector because it wouldnot be profitable for them to do so when non payers might enjoy the benefits.Though schools, roads, and fire protection can be provided by the private sector, the governmentgenerally provides them as these services benefit society as a whole. An educated public benefitsthe whole society. Roads facilitate trade. If one person’s house burns and the fire departmentrefuses to come due to nonpayment, neighboring houses may also catch fire.5Virginia Council on Economic Education

Governments may provide an alternative method to supply goods and services when the benefitsto society of doing so outweigh the costs to societyTeaching Tips1) When you discuss public goods with your students, discuss the characteristics of rivalry andexcludability. True public goods have neither of these characteristics. They do not exhibitrivalry because when any one person uses a public good, no one else is prohibited from using itas a result. Radio waves, for example, are not suddenly unavailable to you when someone elseturns on her car stereo and tunes in to a station you desire to listen to; you may both "consume"these radio waves simultaneously. Nor do public goods exhibit excludability. That is, there is noway to prohibit any one person or group of persons from using a public good for any reason.The example of radio waves still applies. No one--not individuals, firms or even thegovernment--can exclude a certain group, teenagers, for example, from consuming radio waves.This example also shows that not all public goods must be produced by government. Radioprograms are produced by private businesses because they can sell advertising. Most publicgoods, however, are produced by government.32) Have students explain how tax dollars are used to provide national defense. Discuss whynational defense would not be provided in the private sector.2Lessons and ResourcesFocus: High School Economics Lesson 11: Public Goods and ServicesFocus: Institutions and Markets Lesson 7: Public Goods and ExternalitiesEconEdLink Lesson: The Mystery of is it Mine or Ours?https://www.econedlink.org/resources/the-mystery-of-is-it-mine-or-ours/EconEdLink Lesson: Goods and Services: Some Are Private, Some Are Nothttps://www.econedlink.org/resources/goods-and-services-some-are-private-some-are-not/VideoSeinfeld – “The Pledge” http://www.yadayadayadaecon.com/clip/56/6Virginia Council on Economic Education

Day 3 – Tragedy of the commonsEPF.8 The student will demonstrate knowledge of the role of the government in a marketeconomy byb) identifying the role the government plays in providing a legal structure to protect propertyrights and enforce contractsContent KnowledgeWhen property is owned publicly, rather than privately, it is often overused and abused.This problem was noted in 1832 by the economist William Forster Lloyd, who was concernedabout overgrazing on public pasture land in England. Acknowledging the inevitability of theseproblems, the biologist Garrett Hardin coined the now familiar phrase, "the tragedy of thecommons," in 1968.3The “tragedy of the commons” provides students with an important lesson on the value ofmanaging common resources. It can often be applied when discussing many environmentalissues – including overfishing, air and water pollution, and the extinction of the buffalo. Modernsolutions to these problems support the notion of sustainable development, meshing economicgrowth and environmental protection.VocabularyTragedy of the Commons – Overuse or misuse of a commonly-owned resource, such as publicgrazing land or fishing waters.3Teaching Tips1) Introduce an example of a public resource being overused – this could be the extinction of thebuffalo or the over-harvesting of crabs in the Chesapeake Bay. Ask students how governmentmight be used to avoid the “tragedy of the commons.” Discuss examples where governmentalpolicies have been taken to avoid or reverse the “tragedy.” Then ask students how it might bepossible for individuals acting within the market economy to avoid the “tragedy of thecommons.”Lessons and ResourcesCapstone: Exemplary Lessons for High School Economics - Unit 7: Lesson 44 – WorldEnvironmental Issues: Is the Market at Fault?Focus: Understanding Economics in US History Lesson 2: Property Rights Among NorthAmerican Indians7Virginia Council on Economic Education

Focus: Economic Systems Lesson 3: Property Rights, the Tragedy of the Commons, and theCoase TheoremEconEdLink Lesson: New Sense, Inc. vs. Fish ‘Till U Drop or Coase vs. Pigouhttps://www.econedlink.org/resources/new-sense-inc-vs-fish-till-u-drop-or-coase-vs-pigou/Reading“Fishy Business in the South China Sea,” The ASEAN Post.https://theaseanpost.com/article/fishy-business-south-china-sea“Mark Carney Warns of ‘Market Failures’ From Overfishing in the World’s Oceans.” Sky News.https://news.sky.com/story/mark-carney-warns-of-market-failures-from-overfishing-in-worlds-oceans-11281909Videos“Anglers Are in Dire Straits Along Istanbul’s Bosporus” (article is behind a paywall, but thevideo is open.http://online.wsj.com/article/SB10001424052748704723104576061990776738036.html#articleTabs%3Dvideo“Thousands of Fishermen Empty Lake in Minutes”http://www.youtube.com/watch?v=_Tc6ywqoL6o8Virginia Council on Economic Education

EPF.8 The student will demonstrate knowledge of the role of government in a marketeconomy byb) identifying the role the government plays in providing a legal structure to protect propertyrights and enforce contractsDay 1 – Protecting private property and enforcing contractsContent KnowledgeAn important economic role for government is to define, establish, and enforce property rights.Markets do not allocate resources effectively if property rights are not clearly defined orenforced.2Property rights refer to the legal ownership of resources, which include the right to own, use andsell them. Property rights are essential to the transactions in a market economy, and one of theessential roles of government in a market-oriented economy is to protect property rights. Whengoods, including everything from cars to groceries, are bought and sold, a property right istransferred from one party to the other. Your ownership of your own labor, that is, your propertyrights in your own labor, is what gives you the right to be paid for your work. Without propertyrights and ownership, firms would lack any reason to build factories, produce and innovate,because they wouldn't be able to keep what they made or earned. Similarly, people and firmswould have a greatly reduced incentive to save or invest, because they wouldn't be confident ofreceiving the future value from doing so.3Political opinions differ about how extensive the role of government should be in managing theeconomy. But it is clear that a market-oriented economy requires the backdrop of a rule of lawto function well, in which the government enforces contracts and protects property rights.3VocabularyContract – A legal agreement enforceable by law.Virginia Board of Education FrameworkProperty rights give people the right to use their possessions as they choose (within the limits ofthe law).Property rights, contract enforcement, standards for weights and measures, and liability rulesaffect incentives for people to produce and exchange goods and services..Without property rights there would be little incentive to invest. People invest in what they ownbecause they expect to earn a return on that investment. So, for example, many people landscapethe lawns of homes they own, but few landscape a home they are renting.9Virginia Council on Economic Education

People would have less confidence in contracts if there were no guarantee of enforcement. Thuspeople would be less willing to trust contracts to buy, sell, or invest. This would reduceeconomic activity.The government enforcement of weights and measures assures consumers that when they buy tengallons of gas, they are actually getting ten gallons.Teaching Tips1) Predict what would happen to the value of apple orchards if owners were unable to prohibitapple theft. Predict what might happen if there were no legal way to settle boundary disputes orif every state had its own system of weights and measures.22) Lead a student discussion using the following prompts: Why are well defined property rightsso important? First, property ownership encourages wise use of the resource. Are you moreconcerned with changing the oil in a car you own or a car you rent? Second, private ownershipencourages people to use their property productively because this increases its value. Third,private sellers will try to use their property for the benefit of others because this increases itsvalue. Because they will benefit from a higher price, people improve their homes in ways thatmake the homes more attractive to potential buyers. Finally, owning property encourages itswise development and conservation for the future. Why are there more cattle than whales? Whyis commonly owned property often abused?3Lessons and ResourcesEconomics in Action: 14 Greatest Hits for Teaching High School Economics Lesson 4: PropertyRights in a Market EconomyFocus: Institutions and Markets Lesson 2: Property Rights and Contracts as EconomicInstitutionsEconEdLink Lesson: “The Mystery of ‘Is It Mine Or Ours?’”https://www.econedlink.org/resources/the-mystery-of-is-it-mine-or-ours/Property Rights Video and Quiz (Econedlink and VE 4.5)https://www.econedlink.org/interactives/EconEdLink-interactive-tool-player.php?iid=19310Virginia Council on Economic Education

EPF.8 The student will demonstrate knowledge of the role of the government in a marketeconomy byc) providing examples of government regulation of the marketEPF.8 The student will demonstrate knowledge of the role of the government in a marketeconomy byd) explaining that governments redistribute wealthDay 1 – Government regulation and market failuresContent KnowledgeA market succeeds when it brings together a willing buyer and willing seller to make a mutuallybeneficial transaction in a way that satisfies the parties involved. However, there are certainwell-recognized conditions under which market failure occurs; this means either that a markettransaction affects third parties not involved in the transaction or that a market has difficulty inproviding certain kinds of products.3Markets do not allocate resources efficiently if: (1) property rights are not clearly defined orenforced; (2) externalities (spillover effects) affecting large numbers of people are associatedwith the production or consumption of a product; or (3) markets are not competitive.2Thesections on Market and Government Failure, and Regulation, in Nexus: Connections betweenEconomics and Civics provides excellent teacher background on these topics.3Examples of Market Failures:3Externalities are situations in which a market transaction affects a third party who is not part ofthe transaction. A classic example is pollution, where people who do not purchase the goodwhose production created the pollution must nevertheless face polluted air or water.A public good is a good where it is difficult to charge people for using it, and where one person'suse of the good does not diminish the good for others. An example is national defense or policeprotection in public places. Because it is hard for private firms to charge people for theseservices, markets often do a poor job of providing them.A monopoly firm that operates without competition, and thus has the power to increase the pricesit charges to consumers, is an example of market failure.Imperfect information is often cited as a market failure. Ideally all market participants wouldhave perfect information, and it is often argued that markets fail when buyers and sellers haveimperfect information. But buyers and sellers always have less than perfect information.Indeed, any attempt to acquire perfect information would be inefficient because it would soonbegin costing more than it was worth.11Virginia Council on Economic Education

VocabularyExternalities – Economic side-effects or third-party effects, in which some of the benefits orcosts associated with the production or consumption of a product affect someone other than thedirect producer or consumer of the product. Can be positive or negative.3Market failure – A market failure occurs when the market forces of supply and demand do notlead to the output society desires.1Government failure – A government failure occurs when the cost of solving a market failure isgreater than the benefit.1Virginia Board of Education FrameworkSome examples of government agencies that regulate to protect:• consumers (e.g., Consumer Protection Agency, Food and Drug Administration)• labor (e.g., Occupational Safety and Health Administration)• the environment (e.g., Environmental Protection Agency).Government regulations also aim to remedy market failures. A market failure occurs when themarket forces of supply and demand do not lead to the output society desires.The four primary sources of market failures are as follows:• Public goods, such as military protection and roads, are provided by government since themarket would fail to provide them.• Externalities exist when some of the costs and the benefits associated with production andconsumption of a product fall on someone other than the producers or the consumers of theproduct (e.g., air and water pollution, noisy neighbors). The market cannot solve this; sometimesthe government does (e.g., Environmental Protection Agency).• Market power occurs when a shortage of competition results in rising prices. Government maypass laws such as the Sherman Antitrust Act and regulate through agencies like the Federal TradeCommission. It may regulate “natural monopolies,” such as electrical utilities.• Inequity exists because markets reward people according to their effort and skills. Peoplewithout skills, or who cannot work, are likely to be poor. Governments often redistribute incomein order to alleviate poverty.A government failure occurs when the cost of solving a market failure is greater than the benefit.Teaching Tips1) Use simple examples of positive and negative externalities to illustrate market failures. Asimple positive externality is a flu shot. The person who receives the shot receives the benefit ofthe drug's protection and the cost of pain. Other people do not pay the cost but do receive thebenefit because fewer people spread the flu. A simple negative externality is cigarette smoking.The person who smokes benefits in the short term, but other people nearby have costs associatedwith secondhand smoke.312Virginia Council on Economic Education

2) Have students discuss why there might be a role for government in dealing with pollution,vaccinations, and medical research and what they believe that role should be.3) Explain why state and local governments use public money for elementary education. Whyare tobacco and gasoline heavily taxed? Why are some polluting firms taxed and/or regulated?24) Explain why the Federal Trade Commission might oppose the purchase of one largecorporation by its closest competitor and what the effects might be on consumers, producers, andworkers if the merger were allowed.2Lessons and ResourcesFocus: Economic Systems Lesson 11: No Sacrifice is Too Great for Someone Else to MakeEconomics in Action: 14 Greatest Hits for Teaching High School Economics Lesson 5: The Roleof Government in a Market EconomyFocus: Understanding Economics in United States History Lesson 25: The Economic Effects of19th Century Monopoly.EconEdLink Lesson: Clean Land Thanks to US! (EPA lesson)https://www.econedlink.org/resources/clean-land-thanks-to-us/EconEdLink Lesson: Guess Who’s Coming to Dinner?https://www.econedlink.org/resources/guess-whos-coming-to-dinner/VideosMaking Sense with Paul Solman - What’s Really in Herbal Supplements?https://www.pbs.org/newshour/show/whats-really-in-herbal-supplementsVideo on externalities http://www.youtube.com/watch?v=DOuBxJNIFkY&feature=relatedA Civil Action – DVD – (7:10 to 11:25 and 27:30 to 30:30)Erin Brokovich – DVD – Chapter 19 (2 minutes)13Virginia Council on Economic Education

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EPF.16 The student will demonstrate knowledge of taxes byb) exploring how tax structures affect consumers, producers, and business ownersdifferently.Day 1 – Transfer programs and tax structuresContent KnowledgeGovernments often redistribute income directly when individuals or interest groups are notsatisfied with the income distribution resulting from markets. Governments also redistributeincome indirectly as side-effects of other government actions that affect prices or output levelsfor various goods and services.2One of the roles of government is to redistribute income to promote economic equityor fairness. If the distribution of income among households is considered inequitable,government policies may be used to redistribute income. These include changes in who paystaxes, and the level of benefits provided to some individuals and households through transferpayments (including welfare programs and social security) or programs that provide orpartially subsidize education and training programs. However, because differences inincome reflect differences in productivity and are powerful incentives for workers and firms,government policies to reduce inequality may weaken these incentives.3VocabularyProgressive tax – A tax that take a larger percentage of income from people in higher-incomegroups than from people in lower-income ones; the U.S. federal income tax is an example.3Regressive tax – A tax that takes a larger percentage of income from people in lower-incomegroups than from higher-income ones. A regressive tax applies the same to everyone, but the taxpaid represents a larger share of a poorer taxpayer’s income than of a wealthier tax payer’sincome. Sales taxes and excise taxes are examples.3Virginia Board of Education FrameworkEPF 8d: Governments redistribute income to create a safety net and alleviate poverty.Redistribution may be direct through social service programs.Governments also redistribute income with progressive tax rates. With progressive taxes,marginal tax rates are lower at low incomes and rise with income levels; thus, people with higherincomes pay a larger percentage of their income for taxes.A proportional tax levies the same percentage tax at all income levels. So, people who earn morepay more, but, they pay the same percentage rate.15Virginia Council on Economic Education

With a regressive tax, a higher percentage actually falls on people with lower incomes. The salestax is considered a regressive tax because people at lower incomes pay a higher percentage oftheir income in sales tax. This occurs because people at lower incomes spend more of theirincome on taxable things, whereas people at higher incomes spend a much lower percentage oftheir income on taxable things —saving and investing large percentages of their income. SocialSecurity is also considered a regressive tax in that there is a cap, and income above that cap isnot taxed.EPF 16b: Tax structures may be progressive, regressive, or proportional.A progressive tax system is one in which the tax rate rises as a taxpayer’s income rises. Incometax is a progressive tax.A proportional tax is one in which the same tax rate is paid by people at all income levels.Property tax is a proportional tax.Taxes are regressive when taxpayers who earn lower incomes pay a higher percentage of theirincome than those who earn higher incomes. Sales tax is a regressive tax.Teaching Tips1) Describe a government assistance program, discuss why government provides it, anddetermine which groups in the economy benefit and which groups bear the costs.22) Analyze the following situation: A government has to raise $100 billion of revenues. It can doso through a sales tax or a progressive income tax. Explain the effect of each tax on a lowincome and a high income family.2The lesson below from Teaching the Ethical Foundations ofEconomics is an excellent tool for this purpose.3) Students have difficulty understanding regressive taxes. The problem comes from the fact thatalthough a person's income increases, the percentage of that person's income paid in taxesdeclines. This is because most regressive taxes are consumption taxes and consumption does notincrease in proportion to income. A tax is even more regressive if poor people buy more of thegood or service taxed than rich people. Lottery tickets may be the most regressive tax of all.34) Ask students how they would classify licenses and fees. These are payments to government inexchange for certain services. However, they are different from taxes in that the payment isbased on usage. Would certain licenses or fees be considered progressive, regressive orproportional?Lessons and ResourcesFocus: Understanding Economics in Civics and Government Lesson 11: How ShouldGovernment Structure the Tax System?16Virginia Council on Economic Education

Math & Economics: Connections for Life 9-12 Lesson 13: Tax MathCapstone: Exemplary Lessons for High School Economics Unit 5 Lesson 30: Poverty andIncome InequalityTeaching the Ethical Foundations of Economics Lesson 10: What is Economic Justice?Focus: Economic Systems Lesson 12: Income Distribution and Redistribution PoliciesUnderstanding Taxes: The Whys of Taxes – Theme Three: Fairness in Taxeshttp://www.irs.gov/app/understandingTaxes/teacher/whys.jspEconedlink Lesson: Income Inequalityhttps://www.econedlink.org/resources/income-inequality/Econedlink Lesson: Distribution of Incomehttps://www.econedlink.org/resources/distribution-of-income/Econedlink Lesson: UBI - What is Universal Basic Income?https://www.econedlink.org/resources/ubi-what-is-universal-basic-income/VideoMaking Sense with Paul Solman: Does US Economic Inequality Have a Good Side?https://www.econedlink.org/resources/making-sene-with-paul-solman-exploring-the-psychology-of-wealth-pernicious-effects-of-economic-inequality/ReadingsNew York Times: The Rich Really Do Pay Lower Taxes Than Youhttps://www.nytimes.com/interactive/2019/10/06/opinion/income-tax-rate-wealthy.htmlBloomberg: The Rich Really Do Pay Higher Taxes Than Youhttps://www.bloomberg.com/opinion/articles/2019-10-10/the-rich-really-do-pay-higher-taxes-than-you17Virginia Council on Economic Education

EPF. 8 The student will demonstrate knowledge of the role of the government in a marketeconomy bye) explaining that taxes and fees fund all government-provided goods and servicesEPF.16 The student will demonstrate knowledge of taxes bya) describing the types and purposes of local, state, and federal taxes and the way each islevied and used.Day 1 – Where does the money come from and where does it go?Content KnowledgeAlthough having to pay taxes may be hard to swallow, the money that taxes raise makesgovernment possible. In a market economy, we need government to enforce private propertylaws and to step in when markets fail. Without taxes, there would be no laws and no courts.“Taxation,” said Supreme Court Justice Oliver Wendell Holmes Jr., “is the price we pay forcivilization.” And those with basic economic literacy understand: “There is no free lunch.”Most federal government tax revenue comes from personal income and payroll taxes. Paymentsto Social Security recipients, the costs of national defense and homeland security, medicalexpenditures (such as Medicare), transfers to state and local governments, and interest paymentson the national debt constitute the bulk of federal government spending.2Most state and local government revenues come from sales taxes, grants from the federalgovernment, personal income taxes, and property taxes. The bulk of state and local governmentrevenue is spent for education, public welfare (including hospitals and health), road constructionand repair, and public safety.2Virginia Board of Education FrameworkEPF 8e: The bulk of federal spending goes toward• national defense• payments to Social Security recipients• the costs of goods and services, medical expenditures (i.e., Medicare and Medicaid)• interest payments on the national debt.Most federal tax revenue comes from federal income tax and payroll taxes.The bulk of state and local government revenue is spent on public education, public welfare,road construction and repair, and public safety.Most state and local government revenues come from sales taxes, grants from the federalgovernment, personal income taxes, and property taxes.18Virginia Council on Economic Education

Governments may provide an alternative method to supply goods and services when the benefitsto society of doing so outweigh the costs to society.EPF 16a: The federal government provides goods and services from military defense and theinterstate highway system to the administration of domestic programs and agencies. Most federaltax revenue comes from personal income taxes and payroll taxes.Most state and local government revenue comes from sales taxes, grants from the federalgovernment, personal income taxes, and property taxes. The bulk of state and local governmentrevenue is spent for education, public welfare, road construction and repair, and public safety.Types of taxes:● Income● FICA● Flat● Inheritance● Personal property● Progressive● Proportional● Real estate● Regressive● Sales● Social SecurityTeaching Tips1) Use data from the U.S. federal budget to construct two pie charts, one representing majorcategories of federal revenue and the other representing major categories of federal expenditure.2The resources listed below should be helpful as a source for data.2) Compare the various sources of state and local revenues and various categories of state andlocal expenditures in Virginia and the students’ community with those of the U.S. federalgovernment.23) Have students answer the following question: If the national, state and local governments hadno power to tax, what goods and services would we have to do without?2Lessons and ResourcesFocus: Middle School Economics Lesson 10: Where Does the Money Go?Personal Decision Making: Focus on Economics Lesson 8: The Role of Government: WhoNeeds It?19Virginia Council on Economic Education

EconEdLink Lesson: Government Spending: Why Do We Spend the Way We Do?https://www.econedlink.org/resources/government-spending-why-do-we-spend-the-way-we-do/EconEdLink Lesson: Where Does All the Money Come From?https://www.econedlink.org/resources/where-does-the-money-come-from/JFK Presidential Library and Museum - Federal Budget Simulation Lesson Planhttps://www.jfklibrary.org/Education/Teachers/Curricular-Resources/High-School-Curricular-Resources/Federal-Budget-Simulation.aspxDataPolicy Basics: Where Do Our Federal Tax Dollars Go?Policy Basics: Where Do Federal Tax Revenues Come From?https://www.cbpp.org/research/federal-tax/policy-basics-where-do-federal-tax-revenues-come-fromEconedlink Lesson” FRED and the Federal Budget Interactive Lesson.https://www.econedlink.org/resources/fred-and-the-federal-budget-interactive-lesson/Commonwealth of Virginia: spending trends compared with neighboring states.https://ballotpedia.org/Virginia_state_budget_and_financesPortal for data on revenues and expenditures, including state and local governmentshttp://datapoint.apa.virginia.gov/20Virginia Council on Economic Education