Chapter 3 Flashcards
(22 cards)
What is the public sector?
The part of the economy controlled by the government, including national, provincial, and local governments.
What are the functions of the public sector?
Protects citizens (law and order, national security).
Regulates economic activity (sets economic policies).
Provides public goods (roads, parks, education, healthcare).
Manages externalities (pollution control, conservation).
Ensures social welfare (grants, public housing).
What are public goods?
Goods that are non-excludable (available to everyone) and non-rival (one person’s use doesn’t reduce availability for others), e.g., street lighting, national defense.
What are merit goods?
Goods that benefit society but are underprovided by the market, e.g., healthcare and education.
What are non-merit goods?
Goods that have negative effects on society, e.g., cigarettes (taxed to reduce consumption).
What is market failure?
When the free market fails to allocate resources efficiently. The government intervenes to correct it.
How does the government manage the economy?
Monetary policy (controls money supply, interest rates).
Fiscal policy (controls government spending, taxation).
Regulations & subsidies (encourages or discourages production of certain goods).
What are externalities?
Costs or benefits of production that affect third parties.
How does the government manage externalities?
Positive externalities (subsidize beneficial activities, e.g., education, vaccines).
Negative externalities (tax or regulate harmful activities, e.g., carbon taxes, pollution laws).
What are common problems in the public sector?
Lack of accountability – Civil servants are not directly responsible to taxpayers.
Public needs not properly assessed – Government may over/under-supply goods.
State pricing policy issues – Prices may be too high or too low due to political decisions.
Inefficiency – Poor quality service due to bureaucracy, corruption, or incompetence.
What is privatization?
Transferring government-owned assets/services to the private sector.
What are advantages of privatization?
Increases efficiency.
Reduces government spending.
Stimulates private sector growth.
What are disadvantages of privatization?
Risk of monopolies.
Public services may become unaffordable.
What is nationalization?
The government taking ownership of private businesses/assets
What are the five main objectives of the public sector?
Economic growth – Increase in GDP.
Full employment – Reduce unemployment levels.
Exchange rate stability – Keep currency value stable.
Price stability – Control inflation.
Economic justice – Reduce inequality through taxation and welfare programs.
What is the national budget?
The government’s plan for income and expenditure over a fiscal year.
What are the main sources of government income?
Direct taxes (income tax, corporate tax).
Indirect taxes (VAT, fuel levy).
Customs duties (import/export taxes).
What is fiscal policy?
Government decisions on taxation, spending, and borrowing to influence the economy.
What are the types of fiscal policy?
Expansionary fiscal policy (increases spending, lowers taxes to boost the economy).
Restrictive fiscal policy (reduces spending, raises taxes to control inflation).
What is public sector failure?
When the government fails to efficiently manage the economy.
What are the causes of public sector failure?
Corruption (misuse of funds, bribery).
Bureaucracy (excessive red tape).
Lack of motivation (civil servants not incentivized to perform well).
What are the effects of public sector failure?
Waste of resources.
Poor public service delivery.
Increased inequality.
