Public Sector Functions and Fiscal Policy
Functions of the Public Sector
The public sector, in economic matters, strives to achieve three primary goals:
- Promote economic efficiency.
- Procure equality for citizens by improving income distribution.
- Encourage economic stability and growth.
To achieve these objectives, the public sector performs the following functions:
- Taxation: Establishing and collecting taxes.
- Regulation: Regulating economic activity by creating laws and regulations (e.g., competition laws, advertising laws).
- Provision of Goods
Understanding Economics: Macro, Micro, and Health Perspectives
Understanding Key Economic Concepts
Economics: A social science that studies the production, distribution, exchange, and consumption of goods and services.
Macroeconomics
Macroeconomics: A branch of economics that studies national economies and the determinants of national income, output, and the interrelationship among diverse economic factors.
Microeconomics
Microeconomics: A branch of economics that studies the decisions of individual consumers, households, and firms, and how these decisions interact
Read MoreUnderstanding Macroeconomic Policy, GDP, and Economic Indicators
Macroeconomic Policy
Macroeconomic policy encompasses a set of government measures designed to influence the progress of the economy, focusing on key objectives such as production growth, employment, and price stability.
Objectives of Macroeconomics
- Production Growth: Measured by the Gross Domestic Product (GDP), which represents the market value of all final goods and services produced within a country in a year. Final goods are those ready for use or consumption. Potential GDP refers to the maximum
Public Sector Intervention & Economic Policy
Public Sector Interventions: Economic Policy
Economic policy refers to the set of measures and instruments that the state uses to intervene in economic activity and promote the country’s progress.
The Existence of Public Goods
Ideally, the market should supply a sufficient amount of goods and services that society demands. However, this is not always the case. There are situations where the market fails to meet certain social demands. These are often referred to as “unprofitable goods”.
State Interventions
Read MoreMarket Structures: Imperfect Competition, Monopoly, Oligopoly
Understanding Market Structures
A market is considered to exhibit imperfect competition when traders have the ability to influence the market price individually.
- The product is not homogeneous.
- There are barriers to entry.
- There are few sellers (few deals).
- The market share is concentrated.
A company will only increase its production if its profits will increase. Maximum benefit is achieved when Marginal Revenue equals Marginal Cost.
Monopoly
A monopoly exists when the market supply is controlled by a single
Read MoreUnderstanding Economic Models: GDP, GNP, and CPI Explained
Understanding Economic Models
Economic models seek to explain the causes of economic problems in modern society to facilitate the design of economic policies to solve them.
Model Structures
These models observe the economic system from a static viewpoint, describing a reality. Factors such as national wealth are considered.
Working Models
These models observe the economic system from a dynamic perspective, analyzing the interrelationships.
Four Areas of Demand
- Consumption Sector: Families or households