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Question

Difficulty: EasyMeaning and Objectives of Public Finance

When a government spends public funds to construct highways, public schools, and healthcare facilities that private markets fail to provide adequately, which main objective of public finance is being carried out?

  1. Efficient allocation of resources and provision of public goodsAnswer
  2. B
    Equitable redistribution of personal income and wealth
  3. C
    Monetary stabilization of foreign exchange rates
  4. D
    Elimination of public debt through recurrent expenditure reduction

Answer

Efficient allocation of resources and provision of public goods
The correct answer highlights resource allocation. One major objective of public finance is to allocate financial resources toward public and merit goods that private businesses cannot supply profitably or in sufficient quantities.

Step-by-Step Solution

1
Identify the economic activity described in the scenario
The government is financing essential non-excludable infrastructure (highways, schools, health facilities) due to private market failure.
Private markets often underprovide non-rivalrous and non-excludable goods because of the free-rider problem.
2
Map the activity to the corresponding branch/objective of public finance
Directing economic resources toward public infrastructure corresponds directly to the resource allocation objective of government financial operations.
Public finance corrects allocation inefficiencies in the market economy.

Key Concept

Allocation Function of Public Finance
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Topics

Meaning and Objectives of Public Finance

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