Explain the role the government can play through the budget in influencing allocation of resources.
Private enterprises always ** to allocate resources to those areas of production where profits are high.
However, it is possible that such areas of production (like production of alcohol) may not promote social ***.
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 ***.
Production of goods which are injurious to health (like cigarettes and whisky) is discouraged through heavy taxation.
On the other hand, production of “socially useful goods” (like electricity, ‘Khadij is encouraged through subsidies.
So, finally government has to reallocate resources in accordance to social and economic considerations in case the free market fails to do or does so inefficiently.
