Ch 14: Public Sector

Question 1

What are the economic roles of the govt.?

Answer 1

• allocation of resources to the provision of public goods and services
• the redistribution of income for greater equity in income distribution
• regulation of business enterprises to prevent and fic market failure
• management of aggregate demand and supply to achieve macroeconomic objectives

Question 2

What are the three tiers of govt and what are the problems with the overlap of the 3?

Answer 2

Tiers of govt:

• local
• state
• federal

Problems with overlap of roles:

• overregulation and unecessary costs
• lack of clear lines of responsibility and coordination
• vertical fiscal imbalance

Question 3

What are the 6 largest areas of govt spending?

Answer 3

1. social security and welfare
2. payments to states, territories and local govt
3. health
4. education
5. general public services
6. defence, law and order, safety

Question 4

What is the public and private sector?

Answer 4

Public sector:

• part of economy that provides govt services
• may be provided by public servants, state-owned enterprises (Western Power) or by outsorucing private sector business (Serco)
• is increasing

Private sector:

• part of the economy not under direct govt control
• composed of business sector which aims to earn a profit for the owners of the enterprise and the voluntary sector which includes charitable organisations

Question 5

What are the reasons for govt. production of private goods?

Answer 5

• the supply of many of these goods required large amounts of expensive infrastructure built up over long periods of time which would not be possible for a private firm
• to prevent private owners taking advantage of their position and exploiting the buying public by charging excessive prices
• govt. were natural monopolies, where it is more efficient for one firm to supply the whole market because it can take advantage of economies of scale i.e. water supply