Free Printable Worksheets for learning Public Economics at the College level

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Public Economics

Public Economics is the study of how governments affect the allocation of resources and impact economic outcomes through policy interventions. This field of economics focuses on understanding the role and behavior of government in markets and on developing policies to correct market failures.

Key Concepts

Market Failure: When markets fail to allocate resources efficiently, public intervention may be necessary to correct the market failure. Examples of market failures include externalities, public goods, and imperfect competition.
Public Goods: Public goods are non-rival and non-excludable, meaning no one can be excluded from using them and their use by one person does not diminish their availability to others. Examples of public goods include parks, street lighting, and national defense.
Externalities: Externalities occur when the actions of one party affect the welfare of others who are not involved in the transaction. Positive externalities, such as education, have benefits for society as a whole. Negative externalities, such as pollution, have costs for society as a whole.
Taxation: Taxation is a primary tool of governments to raise revenue for public goods and services. The efficiency and equity of taxation policies are key issues in public economics.
Public Expenditure: Governments use public expenditure to provide public goods, transfer payments, and subsidies to individuals and firms, and to finance infrastructure development. The efficiency and effectiveness of public expenditure are key issues in public economics.

Important Information

Public economics also includes the study of income and wealth distribution, social welfare, and public services such as healthcare and education.
The study of public economics has practical implications for policymakers and government officials in designing and implementing policies.
Public choice theory is an approach in public economics that applies economic analysis to political decision-making.
Regulatory economics is a subfield of public economics that focuses on the analysis of regulations and its impact on market outcomes.

Actionable Items

Understanding the different types of market failure and policy interventions available will be important in analyzing public policy issues.
Recognizing the significance of taxation and public expenditure as tools of government intervention, and being able to evaluate their efficiency and effectiveness, is essential in analyzing public policy issues.
The practical applications of public economics are diverse and will require a strong economic foundation and analytical skills.

Here's some sample Public Economics vocabulary lists Sign in to generate your own vocabulary list worksheet.

Word	Definition
Public Goods	Goods or services that are non-excludable and non-rival in consumption, meaning they are available to all individuals and their consumption does not decrease the availability of the good for others. Examples include national defense and public parks.
Externalities	A cost or benefit from an economic activity that falls on third parties who are not involved in the activity. For example, pollution from a factory impacting the health of nearby residents.
Taxation	The practice of the government or other authority levying a financial charge, commonly referred to as a tax, on citizens and businesses to pay for public goods and services.
Fiscal Policy	The use of government spending and taxation to influence the economy. It is often used to stabilize the economy during recessions and inflation.
Government Failure	Occurs when government intervention in the economy causes an outcome that is worse than if there were no government intervention at all. An example might be when government regulations actually lead to higher levels of pollution.
Market Failure	Occurs when the economy does not allocate resources efficiently. Externalities and public goods are examples of market failures.
Opportunity Cost	The benefits forgone by choosing one option over another. For example, if you choose to go to college, the opportunity cost is the income you could have earned if you had chosen to work instead.
Budget Deficit	Occurs when government spending exceeds government revenues in a given period of time.
Public Sector	The part of the economy that involves government and publicly-funded institutions.
Private Sector	The part of the economy that is made up of privately-owned businesses and individuals.
Progressive Tax	A tax system where the proportion of tax paid increases as the income of the taxpayer increases.
Regressive Tax	A tax system where the proportion of tax paid decreases as the income of the taxpayer increases. Sales tax is an example of a regressive tax.
Marginal Tax Rate	The tax rate paid on each additional dollar earned.
Laffer Curve	A theory that suggests that tax revenues will eventually decrease if tax rates become too high.
Deadweight Loss	A loss of economic efficiency in a market that occurs when a tax or other policy leads to the reduction of economic activity below the optimal level.
Public Choice Theory	A branch of economics that analyzes the behavior of political and economic decision-makers, including politicians and bureaucrats.
Social Security	A social welfare program in the United States that provides retirement, disability, and survivor benefits to eligible individuals.
Medicare	A federal health insurance program in the United States for people who are 65 years or older, certain younger people with disabilities, and people with End-Stage Renal Disease.
Medicaid	A joint federal and state health insurance program that provides health coverage for people in need, including low-income adults, children, pregnant women, and people with disabilities.
Entitlement Program	A government-run program that provides guaranteed benefits to certain segments of the population. Social Security and Medicare are examples.

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Study Guide: Public Economics

Introduction

Public Economics is a field of Economics that focuses on the study of government policy and its effects on the economy. It seeks to understand how government actions influence the allocation of resources and the distribution of income in society.

Theoretical Frameworks

Theories of Public Goods: Examines the provision and consumption of goods and services that are non-excludable and non-rivalrous in consumption.
Taxation and Redistribution: Examines the design and implementation of tax policies and their effects on income distribution and incentives.
Market Failure and Intervention: Examines when markets fail to allocate resources efficiently and the role of government intervention in correcting market failures.

Public Spending

Types of Public Spending: Examines different categories of government spending such as social welfare programs, defense spending, and infrastructure investment.
Financing Public Spending: Examines different methods of financing public spending such as taxation, borrowing and printing money.
Public-Private Partnerships: Examines the role of partnerships between private sector organizations and government entities in public spending.

Public Revenue

Tax Incidence: Examines who bears the burden of taxation, consumers or producers.
Tax Progressivity: Examines the degree to which a tax system redistributes income.
Tax Evasion and Avoidance: Examines the methods individuals and firms use to reduce their tax liabilities.

Public Choice

Voting and Democracy: Examines the ways in which election outcomes reflect individual preferences and how public policies are shaped by these outcomes.
Rent-Seeking: Examines how special interests influence government policies to gain economic benefits.
Lobbying and Corruption: Examines the ways in which special interest groups influence government policies through lobbying and the negative effects of corruption.

Conclusion

Public Economics is an essential field of study as it helps us understand how government policies impact the economy and individual households. With this knowledge, we can design policies that promote economic efficiency, equity and social welfare.

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Public Economics Practice Sheet

Problem 1

Suppose that the government is considering implementing a new tax on gasoline. Who will bear the burden of this tax – consumers or producers? Explain.

Problem 2

What is the difference between a progressive tax system and a regressive tax system?

Problem 3

Explain what is meant by the term “public goods” and provide two examples.

Problem 4

What is the relationship between the price elasticity of demand for a good and the incidence of a tax on that good?

Problem 5

The government is considering implementing a new policy to reduce carbon emissions. Explain what types of policy instruments they could use to achieve this goal.

Problem 6

What is the difference between a budget surplus and a budget deficit?

Problem 7

Provide an example of a government program that is intended to reduce poverty.

Problem 8

What is the relationship between externalities, market failure, and the role of government?

Problem 9

What is the difference between a direct tax and an indirect tax? Provide an example of each.

Problem 10

Explain the difference between a positive externality and a negative externality. Provide an example of each.

Sample Practice Problem

Suppose the government wants to increase the amount of public goods it provides to citizens. What options does the government have to finance this increase in public goods?

Increase taxes
Increase borrowing
Increase the money supply
Increase public-private partnerships

The government can finance an increase in public goods by increasing taxes, increasing borrowing, increasing the money supply, or increasing public-private partnerships.

Taxes can be increased by raising the marginal tax rate, increasing the base of taxable income, or introducing new taxes.

Borrowing can be done by issuing government bonds, which are debt instruments that allow the government to borrow money from the public.

The money supply can be increased by the government printing more money or by the central bank engaging in open market operations to buy and sell government bonds.

Public-private partnerships are agreements between the government and private companies to share the costs and benefits of providing public goods.

Practice Problems

What are the two main types of public goods?
What is the difference between a public good and a private good?
What is the free-rider problem?
What is the difference between a merit good and a demerit good?
What is the difference between a positive externality and a negative externality?
What is the difference between a lump-sum tax and a progressive tax?
What is the difference between a subsidy and a tax credit?
What is the difference between a public policy and a public program?
What is the difference between a public sector and a private sector?
What is the difference between a public budget and a private budget?

Public Economics Practice Sheet

What is the basic economic rationale for taxation?
What is the difference between progressive, regressive, and proportional taxes?
What are the economic effects of taxation on the allocation of resources?
What are the different types of public goods and services?
What is the role of the government in providing public goods and services?
What are the economic benefits of public investment in education?
What is the role of fiscal policy in economic stabilization?
How does the government use fiscal policy to influence economic activity?
What are the economic effects of government deficits and debt?
What are the effects of government transfers on economic inequality?

Here's some sample Public Economics quizzes Sign in to generate your own quiz worksheet.

Problem	Answer
What is the difference between a public good and a private good?	A public good is non-excludable and non-rivalrous, meaning it is available to all and its consumption by one person does not reduce its availability to others. A private good is excludable and rivalrous, meaning the owner can exclude others from using it and its consumption by one person reduces its availability to others.
What is the free-rider problem, and how does it relate to public goods?	The free-rider problem occurs when individuals can enjoy the benefits of a public good without paying for it. This creates a market failure because private firms have no incentive to produce public goods since they cannot charge for them. As a result, the government often has to step in to provide public goods.
What is the tragedy of the commons, and how does it relate to externalities?	The tragedy of the commons is the depletion of a shared resource due to individuals' self-interested behavior. It relates to externalities because the overuse of a shared resource can lead to negative externalities for others.
What is the Coase theorem, and how does it relate to externalities?	The Coase theorem states that if property rights are clearly defined and transaction costs are low, then private parties can negotiate to solve externalities problems without government intervention. This is because parties will bargain to reach the most efficient outcome, regardless of who is initially assigned the property rights.
What is the marginal cost of public funds, and why is it important?	The marginal cost of public funds is the amount of economic activity that is lost for every extra dollar of revenue raised by the government. It is important because it represents the efficiency cost of taxation, and can help policymakers determine the optimal level of taxation.
What is the Laffer curve, and why is it controversial?	The Laffer curve is a theoretical relationship between tax rates and government revenue, which suggests that if tax rates are too high, reducing them could actually increase revenue. However, the curve is highly debated and controversial because the optimal tax rate is difficult to determine and may differ across countries and economic conditions.
What is the difference between a progressive, regressive, and proportional tax system?	A progressive tax system is where individuals with higher incomes pay a higher percentage of their income in taxes. A regressive tax system is where individuals with lower incomes pay a higher percentage of their income in taxes. A proportional tax system is where individuals with different incomes pay the same percentage of their income in taxes.
What is the difference between a tax credit and a tax deduction?	A tax credit reduces the amount of taxes owed directly, whereas a tax deduction reduces taxable income, which indirectly reduces taxes owed. A tax credit is therefore generally more valuable than a tax deduction, since it reduces the tax bill directly.
What is the difference between a budget deficit and a national debt?	A budget deficit occurs when government spending exceeds government revenue in a single year. The national debt is the accumulation of all past budget deficits, minus any surpluses, and represents the total amount of money owed by the government.
What is the difference between a public good and a common good?	A public good is non-excludable and non-rivalrous, while a common good is non-excludable but is rivalrous. This means that while both goods are available to all, consumption of a common good reduces the amount available to others, whereas consumption of a public good does not.

Public Economics Quiz

Problem	Answer
What is public economics?	Public economics is the study of the role of the government in the economy, including taxation, spending, and the provision of public goods and services.
What is the difference between public goods and private goods?	Public goods are non-rivalrous and non-excludable, meaning that they can be consumed by everyone and are not rivaled by other goods. Private goods are rivalrous and excludable, meaning that they can only be consumed by one person at a time and are rivaled by other goods.
What is the difference between positive and normative economics?	Positive economics is the study of what is, while normative economics is the study of what ought to be. Positive economics is concerned with describing economic behavior, while normative economics is concerned with making judgments about what is best.
What is the Coase theorem?	The Coase theorem states that if property rights are well defined and transaction costs are low, then the allocation of resources will be efficient regardless of the initial allocation of property rights.
What is the difference between a public good and a common resource?	A public good is non-rivalrous and non-excludable, meaning that it can be consumed by everyone and is not rivaled by other goods. A common resource is rivalrous and excludable, meaning that it can only be consumed by one person at a time and is rivaled by other goods.
What is the difference between a tax and a subsidy?	A tax is a payment made by an individual or business to the government, while a subsidy is a payment made by the government to an individual or business. Taxes are used to raise revenue for the government, while subsidies are used to encourage certain activities or to provide support to certain individuals or businesses.
What is the difference between a progressive and a regressive tax?	A progressive tax is one in which the tax rate increases as the amount of income increases, while a regressive tax is one in which the tax rate decreases as the amount of income increases.
What is the difference between a lump-sum tax and an ad valorem tax?	A lump-sum tax is a fixed amount of money that is collected regardless of the amount of goods or services purchased, while an ad valorem tax is a percentage of the value of goods or services purchased.
What is the difference between a market failure and a government failure?	A market failure is an inefficient allocation of resources due to the failure of the market to provide the correct incentives for individuals to act in their own self-interest. A government failure is an inefficient allocation of resources due to the failure of the government to provide the correct incentives for individuals to act in their own self-interest.
What is the difference between a public policy and a private policy?	A public policy is a policy that is implemented by the government, while a private policy is a policy that is implemented by an individual or business. Public policies are often implemented to address social issues, while private policies are often implemented to address economic issues.

Question	Answer
What is the main goal of public economics?	The main goal of public economics is to analyze the role of government in the economy and the effects of government policies on economic welfare.
What is the difference between public and private goods?	Public goods are non-excludable and non-rivalrous, meaning that they are available to all members of society and one person's consumption does not reduce the availability of the good for others. Private goods are excludable and rivalrous, meaning that they are only available to certain members of society and one person's consumption reduces the availability of the good for others.
What is the difference between normative and positive economics?	Normative economics is a branch of economics that deals with making value judgments about economic fairness, efficiency, and equity. Positive economics is a branch of economics that deals with the scientific analysis of economic behavior and the effects of policies on the economy.
What is the difference between fiscal and monetary policy?	Fiscal policy is the use of government spending and taxation to influence the economy. Monetary policy is the use of interest rates and the money supply to influence the economy.
What is the difference between a tax and a subsidy?	A tax is a payment by individuals or businesses to the government. A subsidy is a payment by the government to individuals or businesses.
What is the difference between a progressive and a regressive tax?	A progressive tax is a tax system in which the tax rate increases as the taxable amount increases. A regressive tax is a tax system in which the tax rate decreases as the taxable amount increases.
What is the difference between a market failure and an externality?	A market failure is a situation in which the market fails to produce an efficient outcome. An externality is a situation in which one person's actions have an effect on another person's well-being.
What is the difference between public and private sector efficiency?	Public sector efficiency is the ability of the government to produce goods and services at the lowest cost. Private sector efficiency is the ability of businesses to produce goods and services at the lowest cost.
What is the difference between a public and a private sector monopoly?	A public sector monopoly is a situation in which the government is the sole provider of a certain good or service. A private sector monopoly is a situation in which a single company has control over the production and sale of a certain good or service.
What is the difference between a price ceiling and a price floor?	A price ceiling is a legal maximum on the price of a good or service. A price floor is a legal minimum on the price of a good or service.