unit 12- use of resources[self-study]

• Private costs and benefits

• External costs and benefits
• Social costs and benefits
 Unit13- public expenditure VS private
expenditure
• PUBLIC EXPENDITURE:
• Expenditure incurred by Central, state and local
gov
• Exhaustive spending- gov incurrs expenditure by
investing in health care, infrastructure and
defence sector
• and transfer payments- transfer of money to
people (pension and unemployment benefits)
and to firms (in the form of subsidies and grants)
 Uses of public expenditure
• National and regional gov spend money on:
• Public goods
• Merit goods
• Supporting vulnerable groups
• Helping private sector industries
• Covering any losses incurred by SOE
• managing the economy, including promoting
employment
 Financing public expenditure
• Taxation
• Borrowing from the profits of SOE
• Privatisation
• Flat taxes- tax with only one rate which is
often low.
 Gov influence on private sector
expenditure
• Taxing income and expenditure
• Providing subsidies
• Giving grants
• Influencing the level of economic activity
 Comparison of expenditures by public
and private sector
A new airport could be built by the private or public sector
Private sector(advantages) Public sector(risk)
Profit incentive and competition Lack commercial expertise to complete
the project on time
High quality at low cost and less time Delays in decision making
consuming
Risk- monopoly –high cost of production- Public sector (advantages)
high price
State financing- private firm will not keep By carrying out an CBA(COST-BENEFITS
their costs low ANALYSIS)
 Cost Benefit Analysis of building an
airport
• Private cost – cost of land,labour,building raw
material and maintenance
• Private benefits- revenue
• External costs- damage the env, noise pollution ,
congestion
• External benefits- create employment
• SC>SB- gov will not proceed with the project
• SB>SC- gov will proceed with the project
• Government expenditure involves opportunity
cost