25022 Public Economics

Subject level: Undergraduate

Handbook description

The subject builds on successful completion of an intermediate microeconomics subject. It is designed to equip students with the fundamental economic principles of government intervention. By the end of the subject students should be able to critically evaluate policy proposals and understand economic analyses presented in the media.

Subject objectives/outcomes

On successful completion of this subject students should be able to:

1. Understand the scope for Government intervention in a market economy.
2. Critically evaluate Governmental taxation and benefits policies including the equity/efficiency trade off.
3. Apply the principles of public finance and public economics to the Australian economy.

Contribution to graduate profile

This subject analyses the economic rationale for collective choice and government intervention in the economy. It explores and evaluates the government's ability to identify and achieve 'better' (more efficient or more equitable) outcomes. Students will first be introduced to the principles of welfare economics and to the mechanisms of collective choice. The course then explores the theory of taxation. Students will enhance their ability to distinguish between progressive and regressive taxes, between formal and effective incidence, and between efficient and equal taxes. Students will see how individuals react to income taxes and benefits by modifying their labour supply and consumption behaviour. In the second part, the subject explains the motivation behind Government intervention in the economy. Students will see why a market economy fails to achieve efficient solutions in the presence of public goods, externalities, natural monopoly and asymmetric information. Finally, the subject presents specific sectors where Government intervention is traditionally active, such as health care and education, with emphasis on the Australian economy.

Teaching and learning strategies

The subject will employ a traditional lecture/tutorial-based teaching strategy. Lecturer-student interaction during lecturers and tutorials will be strongly encouraged.

Content

The subject examines the following topic areas:

• Welfare Economics: edgeworth box; pareto efficient allocation; first and second theorem of welfare economics; social welfare function
• Political Economy: voting theory, cost-benefit analysis
• Taxation: income and goods tax; tax incidence; efficient taxation; personal taxation and behaviour; corporate taxation
• Market Failures: public goods; externalities; natural monopoly; asymmetric information
• Social Policy: health care, education; with reference to the Australian economy

Assessment

Assessment item 1: Mid Semester Exam

Assessment item 2: Assignment

Assessment item 3: Final Exam