2.6.3 Supply-side Policies

Question 1

What are supply-side policies

Answer 1

Aim to increase the productive potential of the economy by increasing the quantity and + quality of factor of productions

Or, by improving the efficiency of the market

Question 2

What are the two types of supply-side policies

Answer 2

1. Interventionist
2. Free Market promoting

Question 3

What are the 4 parts of supply-side policies

(LIFE)

Answer 3

L - Labour Market

I - Industry/Investment

F- Free market

E - efficiency

Question 4

What are the 4 aims of supply-side policies

(EPIC)

Answer 4

E - efficency

P - productivity

I - incentive

C - competition

Question 5

What are supply-size policies related to Labour markets

Answer 5

• Improve education + training = Productivity
• Reduction in income tax = Incentives for inactive to become active
• Abolish minimum wage = Efficiency reducing cost of production
• Reducing trade union power = Efficiency reducing cost of production
• Reduce unemployment benefits = Incentives into jobs market

Question 6

What are supply-size policies related to Industry/Investment

Answer 6

• Reduce Cooperation tax = more profits used in investment = incentive to Invest
• Subsides to promote research and development

Question 7

What are supply-side policies related to Free market

Answer 7

• Privitization - profits motive and competition incentive
• Deregulation - Incentive new firms to enter the market = increasing competition

Question 8

What are market lead polices

Answer 8

to make the market work better and give the private sector more freedom

Question 9

What are Government/state-interventionist policies

Answer 9

in the market to overcome market failure

Question 10

What are interventionist supply-side policies

Answer 10

• State investment in public services + infrastrucuture
• Minimum wage - improve work incentives + Productivity
• Higher taxes on the wealthy
• Selective imports - allowing domestic to expand
• Nationalisation and regulation of industry

Question 11

What are the positives of Supply-side policies

Answer 11

1. Improve all macro economic objectives (in theory)
2. Sustainable - due to being non -inflationary
3. Stimulus growth from AD/AS

e.g. to increase GOv spending leads to short term economic growth (AD increases)

Question 12

Negatives of supply-side policies

Answer 12

1. Very expensive - opportunity cost
2. Time lags
3. No guarantee they work
4. Will be ineffective with a large amount of spare capacity
5. May lead to inequalities in wealth + income
6. Pollution and unsustainable growth

Question 13

What does the success of supply-side policies depend on

Answer 13

initial level economic activity

e.g. if there is full employment

Will need an increase in demand and not supply if in a recession