Public Sector Provision of Goods and Services

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Questions and Answers

Who takes decisions to provide goods and services?

Both the private and public sectors

What services are provided by the public sector?

All of the above

What is one of the purposes of government according to Plato?

To enhance social welfare

What must the state manage according to Plato?

Scarce resources Signup and view all the answers

Which sector is responsible for providing housing services?

Public sector Signup and view all the answers

How does Plato describe a scarce good?

An item whose availability is less than the amount people would want if it were given free of charge Signup and view all the answers

How does the government raise funds for providing services?

Taxation Signup and view all the answers

What does Plato identify about people's wants?

They are unlimited Signup and view all the answers

Which of the following is NOT a service provided by the public sector?

Marketing Signup and view all the answers

What challenge does Plato mention in meeting the demands of the majority?

Managing limited available resources Signup and view all the answers

What are returns to scale associated with?

Long-term changes in production functions Signup and view all the answers

What is a key aspect of returns to scale?

Proportional change in all outputs Signup and view all the answers

What term describes what happens as the scale of production increases over the long run?

Returns to scale Signup and view all the answers

How are returns to scale and economies of scale related?

Both involve changes in the scale of production in the long run Signup and view all the answers

What does the change in output from returns to scale result from?

A proportional change in all inputs Signup and view all the answers

What is a market?

An arrangement that brings buyers and sellers together to exchange goods and services Signup and view all the answers

What does market failure indicate?

The price system fails to produce the quantity of a good that would be socially optimal Signup and view all the answers

Who provides essential goods and services in the event of a market failure?

Government Signup and view all the answers

Which of the following is NOT a reason for market failure?

High profitability of essential goods Signup and view all the answers

What role does the private sector play in the context of market failure?

Provides profitable goods and services Signup and view all the answers

What happens when a firm experiences decreasing returns to scale?

Output increases by less than the proportional change in inputs. Signup and view all the answers

Which of the following is a characteristic of constant returns to scale?

Output gains are proportional to input costs. Signup and view all the answers

Which statement is true about decreasing returns to scale?

Pushing production beyond the limits may be unprofitable. Signup and view all the answers

What defines constant returns to scale?

Output increases by the same proportional change as inputs. Signup and view all the answers

Which is likely to occur as a result of fixed amounts of machinery, equipment, and manpower?

Decreasing returns to scale Signup and view all the answers

Study Notes

Provision of Goods and Services

Decisions to provide goods and services are taken by either the private sector or the public sector
The public sector provides essential services such as health, education, housing, roads, and defense and security
Government raises funds through taxation

The Scarcity Factor

Plato's philosophy: government exists to enhance social welfare and make life good for society's members
The state must manage scarce resources, as resources are limited but people's wants are unlimited
A scarce good is an item whose availability is less than the amount people would want if it were free
Economic system of competition results from the increasing attainment of goods and services and the failure to solve the economic problem

Market Failure

Market failure occurs when the price system fails to produce the quantity of a good that would be socially optimal
In the absence of government, private markets would provide goods and services
Government resolves market failure by providing essential goods and services
Market failure exists due to:
- Unwillingness of private producers to provide needed goods and services
- Inability of private producers to invest in unprofitable goods and services

Commuters and Public Goods

No additional information provided

Returns to Scale

Returns to scale and economies of scale are related terms describing what happens when the scale of production increases in the long run
Returns to scale occur when production functions change, resulting in changes to output due to a proportional change in all inputs

Decreasing Returns to Scale (DRS)

The amount of production is limited to a certain point
Profit may become negative if production exceeds the limit
There may be a fixed amount of machinery, equipment, and manpower
Pushing production beyond the limits may be unprofitable

Constant Returns to Scale (CRS)

Output gains are always proportional to input costs
There is no real limit to the amount that can be produced
If output increases by the same proportional change, then there are constant returns to scale

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