Question

Long answer type questions:
Explain the objectives of resource allocation and income distribution in a government budget.

Answer 1

Market economies are believed to achieve the optimum allocation of resources. Social welfare often suffers as the market economies do not produce enough public goods which satisfy the collective needs of the society. Also, these economies fall to account for externalities of the production which often lead to loss of social welfare on account of environmental degradation.

The distribution of income and wealth is highly unequal in countries like India. 'Economic Divide' is huge and alarming. The problem of the economic divide is combated by the revenue and expenditure policy of the government. 'Taxation and subsidies' is the key policy instrument used by the government in this context.