3.7 Supply side policies Flashcards
• explain what is meant by supply side policy and how it can be used to achieve economic objectives • evaluate the costs, including opportunity cost, and the benefits of supply side policies for the economy
1
Q
What does the term ‘supply side policy’ mean?
A
Any policy that helps to improve a country’s productive potential.
2
Q
What methods can improve supply side performance?
A
- Education and training (supply of labour)
- Reducing the power of trade unions
- Reducing direct taxes on workers
- Reducing benefits
- Reducing direct taxes on firms
- Policies to encourage competition in product markets (e.g. reduce monopoly power (prohibit mergers and force selling off part of their operation))
- Privatisation
- Development of infrastructure
3
Q
What are the costs of supply side policies?
A
- Time lags (e.g. education and infrastructure lag in impact)
- Costly to implement and opportunity cost
- Resistance to policies (trade unions protest, monopolies oppose competition policy due to their profits suffering)
- Equity issues (negative effect on the redistribution of income)
- Unintended effects
4
Q
What are the benefits of supply side policies?
A
- Target specific markets
- Combat inflation
- Increase employment
- Increase economic growth
- Improve the balance of payments
