The production possibilities model provides a menu of choices among alternative combinations of goods and services Given those choices, which combinations will be produced? In a market economy, this question is answered in large part through the interaction of individual buyers and sellers As we have already seen, government plays a role as well It may seek to encourage greater consumption of some goods and discourage consumption of others In the United States, for example, taxes imposed on cigarettes discourage smoking, while special treatment of property taxes and mortgage interest in the federal income tax encourages home ownership Government may try to stop the production and consumption of some goods altogether, as many governments with drugs such as heroin and cocaine Government may supplement the private consumption of some goods by producing more of them itself, as many U.S cities with golf courses and tennis courts In other cases, there may be no private market for a good or service at all In the choice between security and defense versus all other goods and services outlined at the beginning of this chapter, government agencies are virtually the sole providers of security and national defense All nations also rely on government to provide defense, enforce laws, and redistribute income Even market economies rely on government to regulate the activities of private firms, to protect the environment, to provide education, and to produce a wide range of other goods and services Government’s role may be limited in a market economy, but it remains fundamentally important KEY TAKEAWAYS Attributed to Libby Rittenberg and Timothy Tregarthen Saylor URL: http://www.saylor.org/books/ Saylor.org 104