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Fiscal functions
Economics
Answer for application based questions
Answers (3)
1(a) : If left to the open market especially in case of public goods such as eradication of diseases, there's a higher chance of resources being misallocated. Private players concentrate on profit alone and not the welfare of people. It's government's duty to step-in and provide those public goods which have positive externalities such as eradication of diseases. 1(b): The government is fixing the prices of medicines in the form of price ceiling is a clear way of encouraging the consumption. Which suggests that those goods are merit goods and they cause collective advantage in the society when consumed. Drawback could be producers of medicines getting discouraged due to low profits. Q2) There are two points to note here 1. By imposing a special tax on the major flying routes government is intervening in the pricing of the private airlines, which would definitely increase the cost and drive out those private players who have lower margin. 2. The timing of regional airports and flying routes might not be e in the right time. There may have been a delay in recognition or implementation due to which regional connectivity might not succeed and and thus might cause government failure.
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