Public Economics focuses on microeconomic functions of government: the way government affects the allocation of resources and the distribution of income.

1.Contrasting views of government
1.1Organic view
– the community stressed above individuals. Individuals are valued by their contribution to the realization of social goals. Goals of society set by the government.
1.2Mechanistic view
– government is created by individuals to achieve their goals. The government serves individuals


2.Basic Questions in Public Economics
Three (four) basic questions in Public Economics.
①Why do we need the government? Or, when should the government intervene in the economy?
--the motivation for the government intervention.
②How should the government intervene
--How might the government intervene
--What are the effects of alternative interventions?
③Why do governments do what they do in reality?

2.1 Q1: When do we need government?
Generally hard to justify government intervention in markets. Normally, competitive private markets provide “efficient” outcomes for the economy.
But two main justifications are:
Market failures
--the market economy delivers an outcome that is not efficient.
Redistribution
--shift resources from some groups to others.

2.2 Q2How Should the Government Intervene?
Price mechanism that changes the price of a good.
--Taxes; Subsidies; Credits against taxes
Mandate or restrict private sales or purchases.
--Ex. education, health insurance, pollution, social security system,
Public Provision
--Ex. national defense, education, welfare program, health insurance, free condom, free health examination; social security
Private Provision + Public Financing /monitoring
--Ex. private companies administer the subsidized student loans, and the government reimburses private companies.
Create Market
--Ex. pollution market, water right, Copenhagen

2.3 Q3Why Do Governments Do What They Do?
Tools of political economy help us understand how governments make public policy decisions.
Just as market failures can lead to market inefficiency, there are a host of government failures that lead to inappropriate government intervention.

3.A Guideline for Evaluating a Public Policy
①What can government do for the issue? Why intervene?
--Enhance efficiency or give desirable distributional consequences?
②What are the possible effects of the policy?
--Direct effect vs. Indirect effect
--Cost-Benefit Analysis
③Is it desirable compared to other alternatives?
④Can government really attain the desirable outcome？