Syllabus T. Y. B. A. Paper : IV advanced economic theory with effect from academic year 2010-11 in idol

Merit goods 
– Goods that the government compels individuals to 
consume. 
Paternalism 
– The view that the best should intervene because it 
knows what they is in the best interest of individuals better for 
themselves. 
Libertarianism 
– The view that the government should not 
interfere with the choices of the individuals. 
Tow important cautions to economist general presumption against 
paternalism 
The first concerns children  
Someone must make paternalistic decisions on behalf of the 
children, either the parents or the state and there is an 
ongoing debate concerning the proper division of 
responsibility between the two. 
 
The second cautions concerns situations where the 
government cannot commit itself to refrain from helping 
individuals who make poor decisions. 
Two Perspectives on the Role of Government 
Normative analysis 
– focuses on what the government 
should do. 

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Tow important Qualifications 
1. It has to be shown there is some way of intervening in the 
market to make someone better off without making anyone 
worse off that is, Pareto improvement. 
2. It has to be shown that the actually political processes and 
bureaucratic structures of a democratic society are capable 
of correcting the market failure and achieving a Pareto 
efficient. 
Positive analysis 
– Focuses on describing and explaining 
both what government actually does and what its 
consequences. 
14.3 PUBLIC EXPENDITURE THEORY (THEORY OF 
PUBLIC GOODS AND PUBLICLY PROVIDED 
PRIVATE GOODS) 
 
14.3.1 Public Goods
- a good that is perfectly non -rival in consumption; the fact 
that a one person benefit from this good does not prevent another 
person from doing the same simultaneously, e.g. National Defense 
and lighthouse. 
- is a public good where the marginal cost of providing it to 
an additional person is strictly zero and where it is impossible to 
exclude people from receiving the good.