Lesson Overview

The subject area of public finance lies in the intersection between economics and politics and provides important theoretical justifications for public sector involvement in the economy. These justifications explain why it might be in a society’s best interest for the public sector to engage in certain economic activities, including but not limited to providing public goods and services. The goal of this lesson is to introduce those principles of public finance that are most relevant to fiscal decision making.

Lesson Objectives

Before beginning this lesson, think about the following lesson objectives. After completing this lesson, you should be able to

• describe and exemplify what types of economic activities the public sector ought to be involved in (from a public finance perspective);
• describe the theoretical justifications for public sector involvement in these activities;
• apply basic economic efficiency criteria as a way to determine if the provision of a particular good or service will enhance economic welfare; and
• list reasons and exemplify why decisions about the use and acquisition of public resources might at times be suboptimal.

Lesson Roadmap

By the end of this lesson, make sure you have completed the readings and activities found in the Lesson 2 Course Schedule.