Fictitia is a small nation. i). Give an example of a public good that the govern

Question

Fictitia is a small nation.

i). Give an example of a public good that the government of Fictitia could provide. Explain why it qualifies as a public good, and explain why the market could not provide this good.

ii). If the government wanted to provide this good, it needs cash. Explain some of the advantages and disadvantages of using income, sales, and head taxes to fund projects.

iii). If the government didn’t want a general sales tax and instead wanted to target certain goods specifically, what kinds of goods would it want to tax?

Explanation / Answer

i) Public good are those good who possess characteristic of non-excludable and non-rival. Public good are non-rival in the sense that consumption of public good by one person does not reduces its amount available for other person. Non exclusion means if public good has been provided then it does not possibe to exclude one person from consuming it. Government of Fictitia can provide public park, national defense, street light, etc to the nation as they are non-rival and non-excludable in nature. Market does not provide these type of good as they are not profitable in nature.

ii) Advantages of using taxes:

a. It raises revenue for the government which help government to provide public good with better services.

b. All people contribute in the project of the government.

Disadvantages of using taxes:

a. It decreases the purchasing power of individuals.

b. Due to higher taxes, people decreases consumption of goods which negatively affect the economy.

iii) Government can levied tax on the products which are dangerous for the general public like cigarettes, alchohol, etc.

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