Lecture 1 - Lecture 1 Introduction to Public Finance Why...

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Lecture 1 Introduction to Public Finance
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Why study Public Finance? Understand the role of the government in the economy Three Perspectives Understand why and when governments get involved Understand why and what services are provided Understand when and how governments collect revenue
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Four Questions of Public Finance When should the government intervene? How might the government intervene? What is the effect of those interventions on economic outcomes? Why do governments choose to intervene in the way that they do?
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Question 1: When should the government intervene? Pure market economy (no government) Goods and services supplied by private firms for profit All exchanges through markets Prices determined by supply and demand Mixed economy Government expenditures considerable part of GDP Provision of goods through political institutions Governments regulate private economic activities
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Question 1: When should the government intervene? Basic micro theory : the competitive market equilibrium is the most efficient outcome for society Efficiency = Pareto optimality Why do governments intervene in markets if competitive outcome is most efficient? Market Failure Redistribution Efficiency-Equity tradeoff Redistribution results in efficiency losses Choose between “size of pie” and “distribution of pie”
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How might the government intervene? Tax or subsidize private sale or purchase
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Lecture 1 - Lecture 1 Introduction to Public Finance Why...

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