Answer to Question #214057 in Finance for Precilla

Question

Differentiate between social equity and social equality and indicate which of the two is required 

for improvement in social welfare in a country that has a history of inequality. 

 (5)

2.1. Critically discuss any three Macroeconomic and at least two Microeconomic reasons for growth 

in government expenditure. 

(20)

Question 3 (25 Marks)

Differentiate between private goods and public goods and then illustrate and discuss why in the 

provision of private good the summation is horizontal while it is vertical in the case of the provision 

of public good.

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Answer 1

Equality

Individual is allocated the same resources or opportunities.

Equity

Appreciates that each person has different circumstances. Therefore allocates the exact resources and opportunities needed to reach an equal outcome.  

Reasons for the increase in government spending

• The tremendous growth in public expenditure can be attributed to wars and threats of war in modern times making the country want to spend more on public goods

• Increase in Per Capita income also tend to increase as the demand for public goods increase as a result.

• With the uncontrollable increase in the price of commodities in an economy, the government spends more in an effort to control the rate of inflation.

Microeconomic reasons

Income elasticity. If the quantity of commodities demanded increases due to increase in income, the government increases its spending to provide quality public goods.

Funding of government parastatals could also increase the government spending.

Public goods 

These are goods which are provided by the nature or the government for free use by the public. 

Private goods 

Goods manufactured and sold by the private sector to satisfy the consumer needs and wants.

Summation of provision of public goods

Unlike public goods, the public does not necessarily to agree on a given quantity of a private good, and any person can consume more of the private good than another at a given price. The illustration is as shown