The document discusses several key topics related to public finance: 1) It outlines factors that affect the provision of public goods like the relative costs of private vs public production and people's attitudes toward direct government production. 2) It describes the goals of a free enterprise system like economic freedom and no monopolies. 3) It lists factors that influence government expenditures such as population growth, demands for services, and inflation. 4) The functions of public finance are also summarized like allocation of resources, methods of production, taxation, stabilization, and distribution of income.

1. Public Finance
Lecture #1

2. Factors that affect the provision and
production of public goods
• Relative cost of private versus public
production
• The capacity and willingness of the private
sector to undertake production
• The case of the so called natural monopolies
• Decreasing cost industries
• The community’s attitude toward direct
government production of goods and services

3. Goals or objectives of a Free
enterprise system
• To strengthen economic freedom
– free markets
– Private property
– No more monopoly or cartel
– Variety of choices

4. Factors that affect the trend and
pattern of government expenditures
• Increasing demand of the people for more and better
government services
• Urgent necessity of providing
food, clothing, housing, education, employment and
health
• Country’s expanding population/growth in population
• Improving standard of living/lifestyle
• Inflation
• Increasing demand for economic and social
development projects
• Changes in taste and preferences

5. • Economic Efficiency
– Resource is optimally allocated minimizing waste
and inefficiency
– Goods and services are produced at lowest
possible cost

6. • Economic Growth
– Positive level of production of goods and services
– Economic growth is brought about by
technological innovation and positive external
forces

7. • Economic Stability
– Absence of excessive fluctuations in the economy
– Constant output growth low and stable inflation
– Stability of the value of money

8. • Economic Security or financial security
– Stable income or other resources to support a
standard of living now and in the future
– Probable continued solvency
– Predictability of the future cash flow of a person
or other economic entity
– Employment security or job security

9. Functions of Public Finance
• Allocation Section
– What goods and services are to be produced
• Education
• Road
• Building
• Construction of power facilities
• Low cost housing
• Subsidies to consumers
• How much of each good or service to be provided

10. • What method of production
– Goods and services should be produced directly
by the government
– Public control
– Public supervision
– Management of private production should be
sufficient
– Production should be left completely in private
hands

11. • Who is to pay and by how much for goods and
services? How to finance?
– Borrowing
– Printing of money
– Sale of goods and services
– Through taxation

12. Stabilization Section
• Maintaining a high level of resource utilization
that is full employment of all factors of
production and stable value of money

13. Distribution Section
• This relates to the determination and
attainment of a proper state of income
distribution.

14. Actual Government Expenditures
• Economic Development
– Agriculture
– Transportation and communication
– Commerce and industry
– Other economic development

15. Social Development
• Education
• Public Health and medical care
• Labor and welfare

16. National Defense
• Peace and Order
• National Defense

17. General Government
• General Government
• Legislative Services
• Administration of Justice
• Pensions and Gratuities