Public Economics Unit 1

Who defined Public Finance as one of those subjects which lies on the borderline between Economics and Politics?

• Dalton

• J.S. Mill

• Alfred Marshall

• Adam Smith

What are the three major fiscal or budgetary functions of the government according to Musgrave?

• Allocation, Distribution, Stabilization

• Allocation, Stabilization, Growth

• Allocation, Distribution, Growth

• Distribution, Stabilization, Growth

What is the main difference between private finance and public finance?

• Private finance is non-excludable, while public finance is excludable

• Private finance is concerned with the satisfaction of personal wants, while public finance is concerned with the satisfaction of social wants

• Private finance is based on rationality, while public finance is not based on rationality

• Private finance is non-rival in consumption, while public finance is rival in consumption

What are merit goods according to Musgrave?

• Goods whose consumption and use are to be discouraged

• Goods whose consumption and use are to be encouraged

• Goods which satisfy social wants

• None of these

What is the main characteristic of private goods?

• Non-excludable

• Non-rival in consumption

• Rivalry in consumption

• Indivisible

What is the concept of market failure in economics?

• A situation in which market fails to produce or distribute a commodity or service in an efficient manner

• A situation in which market produces or distributes a commodity or service in an efficient manner

• A situation in which market fails to produce or distribute a commodity or service at all

• A situation in which market produces or distributes a commodity or service at all

What are externalities in the context of market failure?

• Effects arising from the production and consumption of goods and services for which appropriate compensation is paid

• Third party effects arising from the production and consumption of goods and services for which no appropriate compensation is paid

• Effects arising from the production and consumption of goods and services for which no appropriate compensation is paid

• Third party effects arising from the production and consumption of goods and services for which appropriate compensation is paid

What is the principle of maximum social advantage in public finance?

• The principle that public finance leads to economic welfare when public expenditure & taxation are carried out up to that point where the benefits derived from the MU of expenditure is equal to the Marginal disutility or the sacrifice imposed by taxation

• The principle that public finance leads to economic welfare when public expenditure & taxation are carried out up to that point where the benefits derived from the MU of expenditure is greater than the Marginal disutility or the sacrifice imposed by taxation

• The principle that public finance leads to economic welfare when public expenditure & taxation are carried out up to that point where the benefits derived from the MU of expenditure is less than the Marginal disutility or the sacrifice imposed by taxation

• The principle that public finance leads to economic welfare when public expenditure & taxation are carried out up to that point where the benefits derived from the MU of expenditure is not related to the Marginal disutility or the sacrifice imposed by taxation

What is the point at which social advantage is maximized according to the principle of maximum social advantage?

• Where marginal social sacrifice is equal to marginal social benefit

• Where marginal social sacrifice is greater than marginal social benefit

• Where marginal social sacrifice is not related to marginal social benefit

• Where marginal social sacrifice is less than marginal social benefit

Marginal cost of providing the public goods to additional consumers

• increases at diminishing rate

• decreases

• is zero

• Cannot say exactly