Public Finance Defined Public finance is about the taxing and spending activities of the government. Also known as \public sector economics\or \public economics.\ Focus is on microeconomic functions of government- polices that affect overall unemployment or price levels are left for macroeconomics
Welfare economics Need systematic framework to assess the desirability of various government actions. Welfare economics is concerned with the social desirability of alternative economic states. Distinguishes cases when private markets work well from cases where government intervention may be warranted
Externality Defined An externality is present when the activity of one entity(person or firm)directly affects the welfare of another entity in a way that is outside the market mechanism. Negative externality: These activities impose damages on others. Positive externality: These activities benefits on others
Social Insurance Programs Generally share 4 characteristics: Participation is mandatory Eligibility and benefits depend on prior contributions Benefits begin with an identifiable occurrence Programs are not means-tested