GOVERNMENT AND BUSINESS

Government regulation of business activity.

Governments are interested in the activities of businesses due to the impact they can have on
people as well as the economy.

Governments are very interested in economic growth as this can affect the total wealth of the
country/economy in a positive way, which will lead to a decrease in unemployment and crime and
violence.

Governments see to the welfare of its citizens, so they may try to protect these citizens against
fraud, misrepresentation, market failures, and products that are unsafe.

Governments see to these activities that businesses carry out by using:

1. Economic regulation – a majority of industries come under some form of regulation eg.
Transportation, communication, clothing and textiles, food etc. Regulations govern
employers, employees, citizens and consumers.
The purpose of economic regulations are to:
a. Protect citizens against firms making extreme profits at the expense of their employees
eg. Over working employees.
b. Unpaid hours
c. Unsatisfactory working conditions etc.
2. To protect against excessive or not much competition as in the case of monopolies.
3. To protect against negative externalities. Externalities are spill over effects of production or
consumption that fall on a third party.

NOTE: there are two types of externalities:

Negative Externalities are things that affect a third party in a bad way eg.

a. The noise of your neighbours radio disturbing your afternoon sleep (you would be the third
party)
b. The smoke emitting from a factory affecting your breathing

Positive externalities are things that affect a third party in a good way eg.

a. Enjoying to look at your neighbour’s garden.

b. Water coming from a factory nearby your home warming a local river for bathing.

SOCIAL REGULATION - The government is able to ensure that employees are treated fairly, which
includes good working conditions, also to ensure that products are safe to use and that we can all
enjoy clean air and water.

Government agencies put in place regulations and legislations to protect the rights of employees.

Employment contracts are made between employees and employers are supposed to be fair.

STANDARD OF LIVING AND QUALITY OF LIFE

Standard of living – the quality and quantity of consumer goods and services that persons find
proper and fitting. It is also looked at as the degree of prosperity of a nation:

- Life expectancy
 - Access to nutritious food
- Safe water supplies
- Availability of medical care
- Income levels
- Quality and quantity of housing
- Transportation
- Communication etc.

So as an example of this is the quality of the environment and services provided by government.

Standard of living is measured by the levels of consumption. Eg how much people consume and by
their income level

Standard of Living is different countries are compared based on annual per capita income or
consumptions of goods and services. However, this method may hide social problems eg. In the US
infant mortality is very high, which rivals some countries that have very low living standards.

Per capita income - the total gross national product or national income for a period of one year
divided by the total population of the country.

GNP (gross national product)/NI (National income) divided total population.

NOTE: the figure includes not only persons who are earning in the country, but also children and
the unemployed. Therefore per capita income is not strictly the average income of the population.

However, it gives an idea of the standard of living in a country.

NATIONAL INCOME

National income is the monetary value of the flow of goods and services made available to the
citizens of a nation over a certain time period (usually a year)

The gross domestic product (GDP) is another term used for the national Income but the money value
does not include net property income from abroad. When the latter is included the term becomes
Gross national product (GNP).

A figure for depreciation of the country’s assets is calculated at the end to give the net National
Income. This is necessary because it represents a reduction in the value off the capital stock in the
country.