, Disclaimer
These notes were compiled using the STADIO 2025 01 DEC20A study guide, Public Economics 8th Edition textbook and
the notes taken from the tutorial sessions offered by STADIO.
When utilising this information for any purpose that requires referencing, the following sources are where I obtained this
information:
Calitz, E., Siebrits, K., Jansen, A., Ajam. T., Steenkamp, T., Stuart, I. 2023. Public Economics. 8th ed. Cape Town: Oxford
University Press.
&
Stofberg, K., 2025. Krugersdorp, School of Administration and Management, STADIO (formerly SBS).
Please DO NOT cite or reference my notes as this is what I summarised and understood from reading, lectures and
tutorials I attended. The purpose of these notes is to assist in gaining an understanding for the module and assisting you
the way that the information assisted me in preparing for examinations.
Please do not distribute this document or try and sell it as your own work. It took many hours of hard work to compile and
format this pack and I would appreciate not seeing my notes on the groups.
Thank you for your support!
1
,Contents
Topic 1 ______________________________________________________________________________________ 5
Definition of Allocative Efficiency___________________________________________________________________ 5
Definition of Pereto Optimality _____________________________________________________________________ 5
Benchmark Model: Conditions 1, 2 and 3 ____________________________________________________________ 5
Definition of Technical Efficiency ___________________________________________________________________ 7
Overview of Market Failure _________________________________________________________________________ 7
General Approaches of the Public Sector ___________________________________________________________ 7
Direct vs Indirect Government Intervention _________________________________________________________ 8
Notes on Government Failure ______________________________________________________________________ 8
Topic 2 ______________________________________________________________________________________ 8
Who Should Provide Public Goods? _________________________________________________________________ 8
Mixed and Merit Goods _____________________________________________________________________________ 9
Summary of Private and Public Goods ______________________________________________________________ 9
Equilibrium of a Private Good – Fig. 3.1 ______________________________________________________________ 9
Equilibrium of a Pure Public Good – Fig. 3.2 ________________________________________________________ 10
Externalities ______________________________________________________________________________________ 11
Negative Production Externality – Fig. 3.3. + Solutions ______________________________________________ 11
Possible solutions to Negative Production Externality ______________________________________________ 12
Positive Consumption Externality – fig. 3.4 + solutions ______________________________________________ 12
Topic 3 ____________________________________________________________________________________ 14
Description of a Statutory (artificial) Monopoly _____________________________________________________ 14
Description of a Natural Monopoly _________________________________________________________________ 14
X-Efficiency of Government-owned Monopolies [Eskom] ___________________________________________ 15
Social Costs of Statutory Monopoly – Fig. 4.1 _______________________________________________________ 16
Decreasing Cost Industry – Fig. 4.3 ________________________________________________________________ 16
Topic 4 ____________________________________________________________________________________ 17
Nozicks Entitlement Theory _______________________________________________________________________ 17
Efficiency Considerations: Disincentive and savings effects of redistribution – Fig. 5.6 _______________ 17
The Excess Burden of a Subsidy – Fig. 10.3 _________________________________________________________ 18
Subsidization of Housing – SG fig. 4.7.3 ____________________________________________________________ 19
Topic 5 ____________________________________________________________________________________ 20
The Median Voter Theorem ________________________________________________________________________ 20
Reasons for Government Failure ___________________________________________________________________ 20
2
, Implicit Logrolling_________________________________________________________________________________ 20
Bureaucratic Failure ______________________________________________________________________________ 21
Niskanen’s Theory – Fig. 6.3 _______________________________________________________________________ 22
Rent-seeking – Fig. 6.4 ____________________________________________________________________________ 23
Topic 6 ____________________________________________________________________________________ 24
Model: Wagner and the stages of development _____________________________________________________ 24
Model: Peacock and Wiseman’s Displacement Effect ______________________________________________ 24
Model: Baumol’s unbalanced productivity Growth _________________________________________________ 25
Cost-Benefit Analysis _____________________________________________________________________________ 25
Topic 7 ____________________________________________________________________________________ 26
Sources of Government Finance ___________________________________________________________________ 26
Taxes: Definition & Classification, Base & Rates ____________________________________________________ 26
General and Selective Taxes _______________________________________________________________________ 26
Other Types of Tax ________________________________________________________________________________ 27
Properties of a Good Tax___________________________________________________________________________ 27
Taxation and Equity _______________________________________________________________________________ 27
Concepts of Tax Incidence ________________________________________________________________________ 27
Tax Incidence _____________________________________________________________________________________ 28
Tax Incidence (Fig. 11.1) ___________________________________________________________________________ 28
Tax on Supply: Elastic Demand – e.g. Luxury Product _______________________________________________ 29
Tax Incidence & Tax Equity Revisited: Important Conclusions _______________________________________ 31
Topic 8 ____________________________________________________________________________________ 31
Tax Burdens: General vs Selective Taxes; Neutrality; Optimal _______________________________________ 31
Administrative Efficiency __________________________________________________________________________ 31
The Magnitude of the Excess Burden of a Tax (FIG 12.2) _____________________________________________ 31
The Effect of Demand Elasticities on Excess Burden (Fig. 12.3) ______________________________________ 32
The Effect of Tax Rates on Excess Burden (Fig 12.4) _________________________________________________ 33
Topic 9 ____________________________________________________________________________________ 34
Personal Income Tax & Economic Effects __________________________________________________________ 34
Arguments ‘for’ and ‘against’ Tax Incentives ________________________________________________________ 34
Definition of Wealth and Examples ________________________________________________________________ 35
Wealth Tax: Equity Reasons _______________________________________________________________________ 35
Property Tax: Equity & Efficiency Effects ___________________________________________________________ 36
Unpopularity of Property Tax ______________________________________________________________________ 37
3
These notes were compiled using the STADIO 2025 01 DEC20A study guide, Public Economics 8th Edition textbook and
the notes taken from the tutorial sessions offered by STADIO.
When utilising this information for any purpose that requires referencing, the following sources are where I obtained this
information:
Calitz, E., Siebrits, K., Jansen, A., Ajam. T., Steenkamp, T., Stuart, I. 2023. Public Economics. 8th ed. Cape Town: Oxford
University Press.
&
Stofberg, K., 2025. Krugersdorp, School of Administration and Management, STADIO (formerly SBS).
Please DO NOT cite or reference my notes as this is what I summarised and understood from reading, lectures and
tutorials I attended. The purpose of these notes is to assist in gaining an understanding for the module and assisting you
the way that the information assisted me in preparing for examinations.
Please do not distribute this document or try and sell it as your own work. It took many hours of hard work to compile and
format this pack and I would appreciate not seeing my notes on the groups.
Thank you for your support!
1
,Contents
Topic 1 ______________________________________________________________________________________ 5
Definition of Allocative Efficiency___________________________________________________________________ 5
Definition of Pereto Optimality _____________________________________________________________________ 5
Benchmark Model: Conditions 1, 2 and 3 ____________________________________________________________ 5
Definition of Technical Efficiency ___________________________________________________________________ 7
Overview of Market Failure _________________________________________________________________________ 7
General Approaches of the Public Sector ___________________________________________________________ 7
Direct vs Indirect Government Intervention _________________________________________________________ 8
Notes on Government Failure ______________________________________________________________________ 8
Topic 2 ______________________________________________________________________________________ 8
Who Should Provide Public Goods? _________________________________________________________________ 8
Mixed and Merit Goods _____________________________________________________________________________ 9
Summary of Private and Public Goods ______________________________________________________________ 9
Equilibrium of a Private Good – Fig. 3.1 ______________________________________________________________ 9
Equilibrium of a Pure Public Good – Fig. 3.2 ________________________________________________________ 10
Externalities ______________________________________________________________________________________ 11
Negative Production Externality – Fig. 3.3. + Solutions ______________________________________________ 11
Possible solutions to Negative Production Externality ______________________________________________ 12
Positive Consumption Externality – fig. 3.4 + solutions ______________________________________________ 12
Topic 3 ____________________________________________________________________________________ 14
Description of a Statutory (artificial) Monopoly _____________________________________________________ 14
Description of a Natural Monopoly _________________________________________________________________ 14
X-Efficiency of Government-owned Monopolies [Eskom] ___________________________________________ 15
Social Costs of Statutory Monopoly – Fig. 4.1 _______________________________________________________ 16
Decreasing Cost Industry – Fig. 4.3 ________________________________________________________________ 16
Topic 4 ____________________________________________________________________________________ 17
Nozicks Entitlement Theory _______________________________________________________________________ 17
Efficiency Considerations: Disincentive and savings effects of redistribution – Fig. 5.6 _______________ 17
The Excess Burden of a Subsidy – Fig. 10.3 _________________________________________________________ 18
Subsidization of Housing – SG fig. 4.7.3 ____________________________________________________________ 19
Topic 5 ____________________________________________________________________________________ 20
The Median Voter Theorem ________________________________________________________________________ 20
Reasons for Government Failure ___________________________________________________________________ 20
2
, Implicit Logrolling_________________________________________________________________________________ 20
Bureaucratic Failure ______________________________________________________________________________ 21
Niskanen’s Theory – Fig. 6.3 _______________________________________________________________________ 22
Rent-seeking – Fig. 6.4 ____________________________________________________________________________ 23
Topic 6 ____________________________________________________________________________________ 24
Model: Wagner and the stages of development _____________________________________________________ 24
Model: Peacock and Wiseman’s Displacement Effect ______________________________________________ 24
Model: Baumol’s unbalanced productivity Growth _________________________________________________ 25
Cost-Benefit Analysis _____________________________________________________________________________ 25
Topic 7 ____________________________________________________________________________________ 26
Sources of Government Finance ___________________________________________________________________ 26
Taxes: Definition & Classification, Base & Rates ____________________________________________________ 26
General and Selective Taxes _______________________________________________________________________ 26
Other Types of Tax ________________________________________________________________________________ 27
Properties of a Good Tax___________________________________________________________________________ 27
Taxation and Equity _______________________________________________________________________________ 27
Concepts of Tax Incidence ________________________________________________________________________ 27
Tax Incidence _____________________________________________________________________________________ 28
Tax Incidence (Fig. 11.1) ___________________________________________________________________________ 28
Tax on Supply: Elastic Demand – e.g. Luxury Product _______________________________________________ 29
Tax Incidence & Tax Equity Revisited: Important Conclusions _______________________________________ 31
Topic 8 ____________________________________________________________________________________ 31
Tax Burdens: General vs Selective Taxes; Neutrality; Optimal _______________________________________ 31
Administrative Efficiency __________________________________________________________________________ 31
The Magnitude of the Excess Burden of a Tax (FIG 12.2) _____________________________________________ 31
The Effect of Demand Elasticities on Excess Burden (Fig. 12.3) ______________________________________ 32
The Effect of Tax Rates on Excess Burden (Fig 12.4) _________________________________________________ 33
Topic 9 ____________________________________________________________________________________ 34
Personal Income Tax & Economic Effects __________________________________________________________ 34
Arguments ‘for’ and ‘against’ Tax Incentives ________________________________________________________ 34
Definition of Wealth and Examples ________________________________________________________________ 35
Wealth Tax: Equity Reasons _______________________________________________________________________ 35
Property Tax: Equity & Efficiency Effects ___________________________________________________________ 36
Unpopularity of Property Tax ______________________________________________________________________ 37
3
