CA Foundation · Business Economics · Public Finance
Which of the following best describes the primary objective of public finance in a modern economy?
Public finance's primary objective is efficient resource allocation and provision of public goods—such as defence and basic infrastructure—which private markets undersupply due to their non-rivalrous and non-excludable nature or positive externalities benefiting society broadly.
- AMaximising government revenue through taxation alone
- BAllocating resources efficiently and providing public goods that markets cannot supplyCorrect
- CEnsuring all citizens earn identical incomes
- DReplacing private sector activities entirely with government production
Explanation
Public finance aims to allocate resources efficiently and provide public goods (like national defence, infrastructure) that have positive externalities or characteristics preventing profitable private supply. Taxation is a tool, not the primary objective. Income equalisation and replacing private sector are secondary or contested objectives. The correct answer captures the fundamental economic rationale for government intervention.
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