a) The goal of public finance is to understand the proper role of the government in the economy. When should the government intervene in the economy?
b) Suppose that the demand for good Q is by 2 groups and given by;
Q1=45-0.2P1
Q2=15-0.2 P2
And the cost function for the same good is given as;
Cost =4Q
i. Find the equilibrium levels of prices for each group and quantities for each group when the good is private in a competitive market and when the good is public good. Which group will be a free rider and why? (10 marks)
Question Three
a) Explain any 5 methods that a government can use to repay its debts. (10 marks)
b) Discuss any five canons of taxation. (10 marks)