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EAE 313: Public Finance Notes

Institution: Kenyatta University

Course: Bachelor of Commerce

Content Category: Lecture Notes

Posted By: Kokotimetraveller

Document Type: PDF

Number of Pages: 133

Price: KES 2000
 
    

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Summary

EAE 313: Public Finance Notes

Definition of public finance:

Public finance (government finance) is the field of economics that deals with budgeting, the revenues and expenditure of a public sector entity, usually government.
The chapter introduces to the student the scope of government activity, measures of public sector and the needs for public sector. Governments provide many goods and services to public. In Kenya the government provides subsidized education in primary, secondary and in university. Also provided are health cares and environmental protection. The government is involved in projects that directly increase the production of goods and services. It provides
water for industrial use, domestic use. Such projects involve expenditures of large amount of money provided through taxing, licensing and borrowing.
The study of public funding enables us to know how the government through its budgetary, At the end of this lecture you should be able to:
(i) Define public finance
(ii) Discuss the scope of government activities
(iii) Explain the measures of public sector
(iv) Discuss the needs of public sector

1.3 THE SCOPE OF GOVERNMENT ACTIVITIES
1. Provision of pure public goods. These are goods to which the principle of exclusion does not apply because they are indivisible and their benefit cannot be priced. The suppliers are faced with the free riders problem since the users cannot be forced to reveal their demand preferences. The government must provide for such.
2. Correction of externalities – suppose a particular public good has external economies which can not be measured and therefore can not be priced. The spills over gains are there in the society, but the supplier cannot charge for it. Hence the price much is lower than the social margin of benefit that determines his supply on the basis of the price he gets.
Hence he produces less than what could be the optimum quantity from the society‘s point of view. The government must provide for such.
3. Quasi – public goods/mixed goods/impure public goods. They posses both element of public and private e.g. education, polio vaccination.
4. Merit goods – They are goods whose provision the society wishes to encourage. Provision of such goods helps the economy to attain a high level of efficiency and contribute to achieving basic objectives of the society. E.g. health, education. They have an overriding importance e.g. precious lives may be lost, if health services are left to the forces of the market only. The state must supplement their availability.
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