2.6.3 - Supply-side policies

Question 1

What are the two types of supply side policies

Answer 1

• Free market supply-side policies
• Interventionist supply-side policies

Question 2

What do Free market supply-side policies aim to do ?

Answer 2

• aim to increase efficiency by removing things which interfere with the free
  market.
• They involve more of the free market and less gov interverntion.
• Examples : tax cuts, privatisation, deregulation, and policies to increase labour market flexibility.

Question 3

What do Interventionist supply-side policies aim to do

Answer 3

• Aimed at correcting market failure.
• Examples : Gov spending on education, , subsidies for research and development, funding
  for improvements to infrastructure (e.g. ports that help firms to export their goods), and industrial policy (this is policy aimed at developing a particular industry or sector of the economy, e.g. through subsidies).

Question 4

Difference between SRAS and LRAS

Answer 4

SRAS - Cost/price
LRAS - Quality and Quantity.

Question 5

Chain of analysis for gov spending on education and training

Answer 5

• Spending on education and training.
• Will lead to more highly skilled workers as individuals gain specialized qualifications and enhanced skills through education and training programs.
• This lead to a highly skilled labour market
• Increasing the productive potential of the workforce.
• This increases productive (output per worker)
• Increase in overall output and therefore supply !
• Use an LRAS diagram here and you could also use a PPF curve. Make sure to embed it.
• Additionally, a more skilled workforce drives innovation
• Innovation leads to new and improved production processes & products which futher increase LRAS.

Question 6

Chain of analysis for gov spending on Infrastructure

Answer 6

• Newer or upgraded infrastructure e.g new or upgrade roads, railway, bridges, airports
• With better infrastructure, it becomes easier and faster for firms to move goods, access resources, and communicate, which makes production more efficient. This allows the economy to produce more overall, shifting the Long-Run Aggregate Supply (LRAS) curve to the right, meaning the economy’s productive capacity has grown.
• New or better infrastructe increase the quanity of the capital stock in the economy because it adds valuable assets—like upgraded transport systems, energy facilities, - hat businesses use to produce goods and services.

Question 7

Chain of analysis for gov spending on subsidies

Answer 7

• financial assistance provided by the government to promote the supply of that good/service or lower cost
• Firms spending on R&D - increased innovation - improved production process - increasing quality and quantity of g&S = Increase in LRAS
• Investment in new tech (e.g self check out machines nd just machinery in general)

Question 8

Market base SSP : Tax reform

Answer 8

• Lower income tax : Incentives people to go into work = Increase in the quantity of labour market.
• Also incentives them to work harder and be more productive = this will improve the productive efficient of the labour market as worker can now keep more of their disposable income.
• Lower corporation tax
• Companies have more retained profits so which they can use to invest back into their company increasing the quality and quantity of supply.(eval point compaines may not reinvest)

Question 9

Market base SSP : Labour market reform

Answer 9

• Reduced benefits
• Incentives the economically inactive to find jobs and enter the labour force which increase the quqnity of the labiur maket increasing supply (eval point they may not find jiobs)
• Reduce min wag
• Minimum wage is a long run cost for business if this is reduced then this reduced business long run cost which help to increase productive efficiency they could also now higer more workers (however reduce min wage may cause people to leave the labour market also it depends on the degree of how much mini wage has been reduced.
• Trade union power

Question 10

Market base SSP : Competition policy

Answer 10

-Privatisation
- Privatization is the process of transferring ownership of a public sector enterprise or asset to private individuals or organizations.
- Private companies often operate more efficiently than government-run entities due to profit motives and competition.
-Deregulation
- Deregulation refers to the reduction or elimination of government rules and regulations that restrict business operations.
- By removing barriers to entry, new firms can enter the market, fostering competition and innovation.
- A more flexible regulatory environment can enhance overall economic activity and investment.
-Trade liberalisation
- Trade liberalization involves the removal or reduction of trade barriers, such as tariffs, quotas, and subsidies, to promote free trade between countries.
- Reducing trade barriers allows countries to access larger markets for their goods and services.
- Trade liberalization encourages competition by exposing domestic industries to foreign competitors, which can lead to greater efficiency and innovation.
- They all increase competition so firms will imoe the quality and quantity so that they become more comoprivetive.