microeconomic policies Flashcards
microeconomic policy
action taken by the government to improve efficiency and productivity within individual sectors to boost aggregate supply in the long term
purpose of microeconomic policy
to improve efficiency, productivity and international competitiveness as well as shifting the long term aggregate supply curve to the right
should result in a better allocation of resources and often leads to structural changes
types of efficiency
technical
allocative
dynamic
technical/productive efficiency
businesses producing the maximum output with minimum resources used
allocative efficiency
when resources are allocated in such a way to reflect consumer preferences
dynamic efficiency
refers to businesses being able to adapt to change in markets
factor market
where the factors of production are trade
product market
where goods and services are sold
deregulation of the agricultural industry
between 1994 and 2004 the ag industry was deregulated after having been regulated by price floors
led to increases in dynamic and technical effiency
in the past decade, farm production has increased by 50%, despite the number of farms decreasing by 30%
benefits of microeconomic policy
greater efficiency and productivity growth over the long term due to increased AS. may also increase comparative advantage of exports and increase GDP and economic growth overall
increased competition
new business and job opportunities as expanding industries require more labour
lower prices and higher living standards
can help to overcome structural problems in an economy
can target specific industries
costs of microeconomic reform
higher unemployment in the short term
closure of inefficient businesses and industries
greater work intensity due to the greater demands of increased competition and innovation
less equal distribution of income
increased government cost to retrain redundant workers
may cause price rises if the monopoly was previously subsidised
political conflicts
deregulation
process of removing rules that constrain the operation of market forces in the aim to improve the efficiency of industries
financial sector deregulation
ensured an increase in the efficient allocation of capital resources and minimisation of costs
floating of the AUD in 1983 - resulted in an increase in long-term competitiveness as it reflected the true value of the currency
RBA using DMOs to conduct monetary policy and implemented inflation targeting
removal of barriers for foreign banks entering Australia in 1985, allowing 16 foreign banks to provide competition for local banks
sale of government assets and enterprises to raise money and improve efficiency in those utilities
non-bank financial institutions allowed to compete with the banks in providing a range of services
national competition policy
an agreement between Australia’s federal and state governments signed in 1995 to encourage microeconomic reform
the goal of competition policy is to increase efficiency, lower prices and provide consumers with more choices
national competition policy reforms
increased market competition for sectors that had monopolies such as electricity, gas and water, removed restrictions on competition and promoted competitive neutrality (the elimination of resource allocation distortions arising out of the public ownership of entities engaged in significant business activities)
ACCC monitors competition policy under the Competition and Consumer Act 2010
