Sometimes the government does not act as a producer of goods and services but still influences private producers. Explain how it might do this?

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While the government does not always act as a producer of goods and services, it still influences private producers in the following three ways:


The government, in its desire to finance its specific initiatives and programs, will sometimes enact new legislation to raise taxes. This influences the decisions and actions of individuals and companies, private or publicly-traded.

For example, it may legislate a new tax on trucking and other enterprises for tires – their environmentally-proper disposal of, for example. Therefore, this may cause a company to put off re-jigging its fleet of trucks until absolutely necessary. It may also cause a company to refrain from purchasing additional trucks for its fleet right now, due to paying more taxes on replacement costs of parts for its current fleet of vehicles.

The government can institute all sorts of legislation that can have a direct effect on the operations of businesses. Just ask the tobacco industry.

Programs that spur innovation

The government can put in place incentive programs designed to help businesses that provide useful goods and services to innovate. For example, it may give grants or tax breaks to companies that are in the alternative energy business. This may be to help them pioneer new wind technology or solar technology that can decrease the nation’s dependence on fossil fuels. As a result, this financial help from the federal, state, or local governments, enables a company to grow as they innovate. The result may be that the company becomes very profitable, and this may only have happened because of the initiative of the government to help the company.

Programs that spur more employment

Furthermore, the government may give funds or tax breaks to businesses to permit them to hire new employees at a reduced cost to the business. The government is trying to spur employment so that they can receive more payroll taxes and spend less on unemployment payouts. The business can hire more employees to further their initiatives such as increasing production. Therefore, a business may sign on for the government program to drive growth and maybe would not have hired any new employees without this government program, so, certainly, the government is influencing a business’s actions in a significant way.

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