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Summary Public Sector Economics UCT R201,00
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Summary Public Sector Economics UCT

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  • February 7, 2024
  • 258
  • 2023/2024
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Public Sector Economics


Externalities: Problem and Solutions




Public Sector Economics 1

, Understanding the fundamentals

Understanding the fundamentals
Why is government such a important:

What is government a budget surplus

What is budget deficit

“The debt measures the accumulation of past deficits over time” meaning

These deficits must be financed by borrowing from either
citizens of
the local/ national area, or by borrowing from citizens of
other areas /
nations




Public Sector Economics 2

, Unpacking the basic questions of the public economy
What are the 4 fundamental questions of public economics:

1. When should the government intervene in the economy?

2. How might the government intervene?

3. What is the effect of those interventions on economic outcomes?

4. Why do governments choose to intervene in the way that they do?

When should government Intervene: Understood through
fundamental theorems of Welfare in economics.
1st Fundamental Theorem of Welfare Economics




2nd Fundamental Theorem of Economics:


Society can attain any efficient outcome by suitably
redistributing resources among individuals and then
allowing them to freely trade

How does one define Social welfare

What is Redistribution

What is the Equity - efficiency trade off




Public Sector Economics 3

, 💡 the choice society must make between the total size of the economic
pie and its distribution among individuals


How might government intervene
Tax/Subsidise Private Sale or Purchase

Restrict/Mandate Private Sale or Purchase:
Quotas restrict private sale of goods that are overproduced. Mandates require
private purchase of goods that are underproduced

Public provision

Public Financing of Private Provision

The effect of alternative interventions
inventions have a direct and indirect effect

Direct Effect
the effects of government interventions that would be predicted if
individuals did not change their behaviour in response to their interventions.
E.g. Cost of providing health insurance to 84% uninsured in SA

Indirect Effect
The effects of government intervention that arise only because
individuals change their behaviour in response to the interventions
E.g. If the 16% with private health insurance drop their private coverage, how
does that affect the cost?

Why do governments do what they do

Governments do not always choose efficient or socially desirable outcomes •
Governments face enormous challenges in figuring out what the public wants
and
how to choose policies that match those wants • Political economy: The
theory of how the political process produces decisions that
affect individuals and the economy




Public Sector Economics 4

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