Public Finance

Market  failure refers to the circumstances under which market fails to allocate resources efficiently.  This can occur due to externalities and public goods. They are explained as under:- 1) EXTERNALITIES:- The presence of externalities in production and consumption lead to market failure. Externalities are market imperfections where the market offers no price for service or disservice. These externalities led to malallocation of resources and cause consumption or production to fall short of an optimum level. They do not lead to maximum social welfare. Externalities, also lead to the divergence of social cost from private cost, and of social benefits from private benefits. When social and private costs and social and private benefits diverge, perfect competition will not achieve maximum social welfare. This is because under perfect competition Private Marginal Cost (PMC) is equated to Private Marginal Benefit (PMB), i.e. PMC=PMB.  Lets discuss how external economies and ...

  What are Public Goods? Public good is a term in economics which refers to the good (commodity) that is available for use for everybody and one person’s usage of it does not diminish or exhaust its availability to others. It is considered non-excludable and non-rivalrous.  Public goods are provided as a whole to the society by the government and the consumption of these goods by an individual doesn’t reduce its availability or doesn’t exclude others from consuming it. Therefore, public goods are non-rivalry and non-excludability. Examples of public goods are education, infrastructure, lighthouses, flood control systems, knowledge, fresh air, national security, official statistics, etc. The public good is different from the common good in that common good, though non-excludable, tends to be semi-rivalrous in nature. Examples of common goods would be timber, coal, etc. Public goods are useful for the population as a whole.  Free Rider Problem The non-excludable property of...

 Public finance is the study of income, expenditure, borrowing and financial administration of the Government. On the other hand, Private Finance is the study of  income, expenditure, borrowing and financial administration of individuals or private companies. There are, therefore, no fundamental differences between Public Finance and Private Finance. However, there are certain basic differences between the two.                                                                                                                     SIMILARITIES The following are the similarities between public and private finance. 1) Objective:-  Both the State as well as individual aim at the satisfaction...

 Prof. Dalton divides the scope of Public Finance into four categories. They are discussed as under:-  1. Public Revenue , which deals with the method of raising funds and the principles of taxation. Thus, within the purview of public revenue, we take up the classification of public revenue, canons and justification of taxation, the problem of incidence and shifting of taxes, effects of taxation, etc. 2. Public Expenditure , which deals with the principles and problems relating to the allocation of public spendings. Here we study the fundamental principles governing the flow of public funds into different channels; classification and justification of public expenditure; expenditure policies of the government and the measures adopted for general welfare. 3. Public Debt , which deals with the study of the causes and methods of public loans as well as public debt management. 4. Financial Administration , under this the problem of how the financial machinery is organised and admin...

                                                  MEANING In simple layman terms, public finance is the study of finance related to government entities. It revolves around the role of government income and expenditure in the economy. Public Finance means the study of income and expenditure of central, state and local governments and the principles underlying them.                                                                                          DEFINITION According to Prof. Dalton," Public Finance is concerned with the income and expenditure of public authorities, and with the adjustment of the one to the other. The Principles of Public...