Government raises its expenditure on producing public goods. Which economic value does it reflect?
The economic value that is reflected in the rise in the production of public goods is the value of ‘social welfare’. The major objective of the budgetary policy of the government is to enhance the welfare of the society at large. For this, it performs the allocative function. The allocative function is concerned with allocating the resources between private and public sectors.
As the public goods cannot be provided by the private sectors through market mechanism, hence the . need for providing such goods is to be fulfilled by the government. In addition to this, private-goods cannot be afforded by all, i.e. only those who can pay for these goods can avail the benefits of such goods. But, as the public goods are required by all and are essential from welfare point of view, thus, government provides these goods.