Summary |
The proper role of government provides a starting point for the analysis of public finance. In theory, under certain circumstances private markets will allocate goods and services among individuals efficiently in the sense that no waste occurs and that individuals tastes are matching with the economy’s productive abilities. If private markets were able to provide efficient outcomes and if the distributions of income were socially acceptable, then there would be little or no scope for government. In many cases, however, conditions for private market efficiency are violated. For example, if many people can enjoy the same good at the same time (non-rival, non-excludable consumption, then private markets may supply too little of that good. National defense is one example of non-rival consumption or of a public good.
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