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Question
Two friends Komal and Ritika were discussing the Government budget.
"Through its budgetary policy the government of a country directs the allocation of resources in a manner such that there is a balance between the goals of profit maximisation and social welfare".
The above-mentioned statement was given by Komal, identify the objective of Government budget was she talking about?
Options
Redistributive activities
Activities to secure a reallocation of resources
Stabilising activities
None of these
Solution
Activities to secure a reallocation of resources.
Explanation:
Private businesses are continually looking for strategies to focus their efforts on areas of production where they can make the most money. However, such areas of production (such as the manufacture of alcohol) may or may not improve social welfare. The production of commodities that are harmful to one's health (such as cigarettes and alcohol) is discouraged by high taxes. Subsidies, on the other hand, encourage the creation of "socially beneficial items" (such as electricity, or "Khadi"). Finally, if the free market fails or does so inefficiently, the government must reallocate resources in accordance with social and economic concerns.
