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The role of public finance is to understand the proper role of the government in the...

The role of public finance is to understand the proper role of the government in the economy. When should the government intervene in the economy 10marks

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Governments should intervene in the economy to promote general economic fairness. Maximizing social welfare is one of the main common and best understood reasons for government intervention. If there is a market failure, such as an monopoly or externality, government regulation might improve the well-being of society by promoting efficiency. If the distribution of wealth or income is considered to be unfair by society then the intervention of government might achieve a more equal distribution of economic well- being. Government intervention may reduce inequality by redistribution of the resources through transfers and taxes.

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