Question

Explain the ‘allocation of resources’ objective of Government budget. 

Elaborate the objective of ‘allocation of resources’ in the Government budget.

Answer 1

Allocation of resources is one of the important objectives of the government budget. In a mixed economy, the private producers aim towards profit maximisation, while the government aims towards welfare maximisation. The private sector always tends to divert resources towards areas of high profit, while ignoring areas of social welfare. In such a situation, the government, through its budgetary policy, reallocates resources to maintain a balance between the social objectives of welfare maximisation and the economic objective of profit maximization. For example, the government levies taxes on socially harmful goods such as tobacco and provides subsidies for the socially desirable goods such as food grains.