Summary
Summary Public Finance
- Course
- Institution
- Book
Summary study book Public Finance of Richard W. Tresch - ISBN: 9780126990515 (Public Finance)
[Show more]
Connected book
Book Title:
Author(s):
- Edition:
- ISBN:
- Edition:
Seller
Follow
ProfDavi
Content preview
CFI 313: Public Finance;Introduction
Learning focus areas
1. Definition of public finance
2. Main role of government under public finance
3. Scope of Public Finance
4. Alternatives views of government
5. Types of economic systems
6. Measuring the size of the public sector
7. Reasons for government participation in the economic activities
8. Welfare economics
9. Distinction between public and private finance
1.0 Definition of public finance
Public finance is the study of the role of government in the economy and the relationship between the
individual and the state. Public finance is also known as public sector economics or just public economics
2.0 Main roles of government under public finance
According to Richard A. Musgrave (the father of modern public finance) there are three main
government functions under public finance :-
2.1 Allocation function
Under the allocation function the government seeks to provide social or public goods which cannot be
effectively provided through the market system of supply and demand. Since the price mechanism does
not work in some cases the government role is to influence resource allocation. This the government
does by carrying out the following:-
2.1.1 Securing condition that ensures price mechanism work
The claim that the market mechanism leads to efficient resources use (i.e. produces what consumers
want most and does so in the cheapest way) is based on the condition of competitive factor and product
, market. Thus there must be no obstacle to free entry in the market and consumers and producers must
have full market knowledge. Government regulation or other measures may be needed to secure these
conditions.
2.1.2 Provide a legal structure
The contractual arrangements and exchanges needed for market operation cannot exist without the
protection and enforcement of a governmentally provided legal structure.
2.1.3 Provision of public goods
The problem of externalities arises in production of certain goods leading to market failure and
therefore the government must intervene and provide these goods thorough normal budgetary
provisions, subsidies or tax penalties. Externalities refer to social costs and benefits that are not fully
accounted for in the market system e.g. provision of national defense, reduction of air pollution, street
lights, providing law and order e.t.c.
2.1.4 Adjustments in the reduction of income
Income disparity and social values may require adjustments in the distribution of incomes and wealth.
It’s the government objectives to provide employment and ensure stability in prices of goods and
services. To achieve high employment and stable price the must intervene through budgetary
allocations, fiscal policies and also monetary policies.
2.1.5 Determine proportions of national resources to be devoted for producing consumer goods and
investment goods.
In the case of public goods a certain quantity is consumed by everyone. Therefore the demand for any
quantity of that public good is the sum of prices that each individual consumer is willing to pay for that
quantity. Each demand curve implies the marginal benefit that the consumer gets from consuming every
level of production. The optimum level of production of a public good is determined by equating the
sum of the marginal benefits to the marginal cost of production i.e. the optimum quantity is that
quantity for which the marginal cost of the last unit consumed is equal to the sum of prices that all
consumers are willing to pay for that unit.
2.2 Distribution function
Whereas allocation functions deals with provision of social goods due to market failure, distribution
function concern itself with the efficient use of the resources compared to the given the level of income
and consumption patterns of the citizens. Distribution function seeks to bring equity and equality among
all citizens and in different regions of the country e.g. Equal pay for women, Disability fund, HELP for
higher education funding, Minimum wage. Uwezo fund etc.
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through EFT, credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying this summary from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller ProfDavi. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy this summary for R188,34. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
72964 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy summaries for 14 years now