Fill in the blank: Public finance includes the study of ____ and ____.

Taxation and public expenditure

True or False: Public finance is solely concerned with economic factors and ignores social implications.

False. Public finance also considers social implications and aims to improve the welfare of the population.

What is the Principle of Maximum Social Advantage?

Government actions should maximize welfare.

• Balances taxation and public spending.

• Aims for societal benefit efficiency.

• Guides optimal resource allocation.

Fill in the blank: Market failure occurs when the free market fails to allocate resources efficiently, often due to ____ or _____.

Externalities or public goods

What are externalities, and how do they contribute to market failure?

Externalities affect market efficiency.

• Unintended effects on others.

• Can distort market prices.

• Lead to inefficiencies in resources.

True or False: The government can force individuals to pay for public goods.

True. The government collects taxes to fund public goods that benefit everyone, despite individual contributions being compulsory.

What is the role of government in correcting market failures?

Government corrects market failures.

• Implements regulations for fairness.

• Provides public goods for all.

• Promotes competition to lower prices.

Fill in the blank: The point of maximum social advantage occurs when Marginal Social Benefit (MSB) equals _____.

Marginal Social Sacrifice (MSS)

What is the Principle of Maximum Social Advantage, and how does it guide government financial activities?

Principle of Maximum Social Advantage

• Aims for economic welfare.

• Balances tax and spending.

• Ensures resource allocation efficiency.