contributions cover actual amounts receivable from employers and employees To understand the role of government, it will be useful to distinguish four broad types of government involvement in the economy First, the government attempts to respond to market failures to allocate resources efficiently In a particular market, efficiency means that the quantity produced is determined by the intersection of a demand curve that reflects all the benefits of consuming a particular good or service and a supply curve that reflects the opportunity costs of producing it Second, government agencies act to encourage or discourage the consumption of certain goods and services The prohibition of drugs such as heroin and cocaine is an example of government seeking to discourage consumption of these drugs Third, the government redistributes income through programs such as welfare and Social Security Fourth, the government can use its spending and tax policies to influence the level of economic activity and the price level We will examine the first three of these aspects of government involvement in the economy in this chapter The fourth, efforts to influence the level of economic activity and the price level, fall within the province of macroeconomics Responding to Market Failure In an earlier chapter on markets and efficiency, we learned that a market maximizes net benefit by achieving a level of output at which marginal benefit equals marginal cost That is the efficient solution In most cases, we expect that markets will come close to achieving this result—that is the Attributed to Libby Rittenberg and Timothy Tregarthen Saylor URL: http://www.saylor.org/books/ Saylor.org 788