Public Finance & Budgeting Dr. Adnan A. Alshiha Introduction Public Finance: as field of study is the study of political economy. Economic: examine the working.
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Transcript Public Finance & Budgeting Dr. Adnan A. Alshiha Introduction Public Finance: as field of study is the study of political economy. Economic: examine the working.
Public Finance &
Budgeting
Dr. Adnan A. Alshiha
Introduction
Public Finance: as field of study is the study of
political economy.
Economic: examine the working of a market
system.
Politics: examine the organization and the
process through which social decision are made.
The two must join in studying the effect of
political (collective decision ) on the economy.
The study of public finance involve two
stages:
What government try to accomplish and
how efficient are its effort in attaining its
objective?
How do institutions organized to carry out
collective objectives affect the behavior of
individuals in the market economy
Public Economy
The no-government economy.
The all-government economy.
Government as an economic unit.
Collective goods and services.
The no-government
economy
Assume there is no government
The economic organization: consists of
two units:
individual or families
Business units
Trade takes place in two markets:
Market for consumer or final goods &
services
Market for productive services
The Wheel of Income
Final good and services market
families
Business
Factors of production market
Economic Organization
Private people “trade” Productive services
for final products
Firms buy productive services and
transform them into final products
Business exist
Principle of consumer
Sovereignty
One Riyal One Vote
Individuals express their desire based on
their willingness and ability to purchase.
Advantages of Voluntary
Economy
Individual are free within the limit of their
economic power.
High degree of efficiency
Market Disadvantages
Social injustice
Monopoly
Instability
Prices do not correspond as quickly as the
change in individual taste or preference.
Complex economic interdependence
The All Government
Economy
Collectivity of choice
One man One vote
Collective Consumption
Indivisible goods
Decision is made through political process
The Potential for trade
Individual provided with uniform quantity.
Preferences among individual are different.
If good is Technologically divisible trade
occur.
Collective Organization and
Economic Efficiency
Varying preferences can not be expressed.
Low Efficiency.
Efficiency defined in term of the degree to
which individual preferences are satisfied
Collective Organization and
Distribution
High equality in distribution of goods and
services.
The World of Equal
Preference are the same.
Ability are the same.
no difference in the working of an
economy organized on Market line and
one organized on collective line
Equal Abilities
Differentials Preferences
The relative advantages of market over
collectivist economic organization become
apparent.
Different Ability Equal
Preference
This provides the strongest support for
collectivist organization of the economy.
Different Ability
Different Preference
Contrast based on human nature
Market advocates: Different ability
because in Taste
Government advocates : basic differences
in capacities of human being to produce
economic value.
Saudi Arabia Economy
Mixed Economy (market- collectivized)