Role of Government in the Economy

• Why Taxation?: A key question in finance is why the government takes a part of your income, often about $30$ for every $100$ earned (about $30\%$ tax).
• Need for Taxes: People usually don’t willingly pay enough for services they benefit from, which is why taxes are important.
• Free Rider Problem: Some people enjoy benefits without contributing to their cost, leading to a situation where many don’t bother paying because they can get the service for free.
• Tragedy of the Commons: When individuals act in their own interests regarding shared resources, it can lead to depletion of those resources, harming everyone.

I. Public Goods and Services

• What are Public Goods?:
  • Shared Consumption: Public goods can be enjoyed by many at the same time without one person's use reducing availability for others.
  • Exclusion Hardship: It’s hard to stop someone from using a public good if they don’t pay for it, making private sectors less likely to provide these services.
• Example: