Introduction A corporation is a form of business organization in which ownership is usually represented by transferable stock certificates -Stockholders have limited liability Corporations are independent legal entities · Can make contracts, hold property, incur debt, sue, and be sued

Basic Structure Fiqure 15.1 shows the series of steps used to compute a person's tax liability. Step 1: Compute Adjusted Gross Income (AGI) Step 2: Convert AG/ into taxable income by subtracting exemptions and deductions Step 3: Compute tax due by applying a rate schedule, and subtracting tax credits

Introduction Are people unaffected by tax increase if they pay zero in taxes afterwards? No, consumption may have changed in response to the tax increase Bundle consumed is less desirable Excess burden is a loss of welfare above and beyond the tax revenues collected

Introduction Cost-benefit analysis is a set of practical procedures for guiding public expenditure decisions

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

Introduction Will provide framework for thinking about the normative and positive aspects of government income redistribution policy

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

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

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

1. Adverse selection(逆向选择) The situation that occurs when the people who are most likely to receive benefits from a certain type of insurance are the ones who are most likely to purchase it