Public economics looks at how the government influences the market and how government policy changes economic productivity. In a general sense, public economics is the study of government policy and how it impacts taxation. Government policy is how the government manages the production of goods and services using interest rates and tax policies. The objective of government policy is to fix economic issues like unemployment or inflation and maintain a balanced economy.
This branch of economics is primarily concerned with topics related to market failure, such as information asymmetries and externalities, and the actions that the government can take to correct these issues, such as by implementing social programs. Public economics stems from welfare economics, which is an area of economics that analyzes the effectiveness of allocating productive factors to improve the market.
Public economics is classified as microeconomics because it uses microeconomic theories and techniques to determine if a private market can be efficient without the involvement of government policy. Public economics is studied because it is relevant to our lives and helps us assess the markets we are apart of. For example, when presidential candidates propose their ideas for public policy during an election, we can understand what these policies would mean for the market and how they would affect our lives. This area of economics connects to ideas in psychology because public economics studies the behavioral reaction of the market to actions made by the government. Topics that fall under public economics include tax incidence and efficiency, optimal taxation, social insurance, and public goods and externalities.