Microeconomic Policies Flashcards
Define microeconomic policy
Action taken by the government to improve resource allocation between firms and industries, to maximise output from scarce resources
What does micreconomic policy focus on dealing with
It aims at improving the economies efficienty, hence shifting the AS curve
How can an increase in AS be achieved and which does microeconomic policy focus on
through an improvement in the quality of production or quantity of production. Microeconomic focuses on quality of production to improve efficiency
Whats the microeconomic policy impact time like
more long term, as it focuses on structural changes to the economy which focuses on improving the economy in the long term, but takes a short term neg affect to the economy
define structural change
structural change are shifts in the pattern of production in an conomy, reflecting changes in technology, consumer demand, global competitiveness and other factors
What three types of efficiency does micreconomic policy aim at targeting
technical, allocative and dynamic efficiency
Define technical efficiency
technical efficiency refers to producing the maximum output at the minimum average costs by operating at the technical optimum. A firms goal is the lead cost combination of resources
Define allocative efficiency
firms charge prices according to their marginal costs of production and consumers pay prices according to their marginal benefit, hence representing consumer preferences and efficient allocation of resources. In short, resources are attracted to producers who have the greatest capacity to pay,and this reflects relative efficiency
Dynamic efficiency
firms are capable of responding to changing economic circumstances like changes to consumer preferences or changes in domestic/global market conditions. This includes the firms ability to innovate and adopt new technologies
What are examples of product market reforms
National Competition policy, trade and industry policy, taxation reform
Recap the national competition policy
The national competition policy was implemented in 1995, aiming at reforming PTE’s. It has since been renamed to the Competition and Consumer Act
What are the main elements of the National competition act
- limits anti competitive conduct of firms
- limiting the monopoly of pricing behaviours of firms
- reform of government regulations that restricted competition
- creating competitive neutrality between public and private
Whats workable competition(CCA)
the idea of sacrificing some competition for economies of scale, reducing long run costs of production
Whats trade and industry policy
policy focusing on the reduction in industry protection(tariffs and quotas)which promoted international competition, forcing industries to becomes mroe efficient
What did the 1988 and 1991 industry statements aim to do
- reduce manufacturing tariffs to 5% in 1996
- abolition of quotas and reduction of tariffs in Passenger Motor Vehicles(PMV) to 15% in 2000
- abolition of quotas and reduction of tariffs in TCF(textile, clothing and footwear industry) to 25% by 2000
- commitment to free trade through bilateral, multilateral and regional agreements
whats taxation reform
tax reforms focused on increasing incentives to work and raise productivity to ensure a more efficient economy
what changes did The New Tax Sustem in 2000 bring about
- replacing broad indirect taxes with GST
- Abolition of sales tax, as well as exempting exporting firms from GST to improve competitiveness
- lower imncome tax compliance costs by switching to PAYG
- company tax decreased from 30% to 27,5%
- increasing instant assest write-off to $30k
What are the factor(CELL) market reforms
Labour market and industrial relations and reforma of the Australian Financial System
What are the labour market and industrial relations reforms
- determination of wages and workplace conditions- NEXT TOPIC
Reform of the Australian Financial System
Australia deregulated its financial markets in 1983, removing the RBA’s direct controls over policies. Aus also floated AUD(1983) and introduced 16 foreign bansk
what are the benefits of deregulation
- improved efficiency through the removal of ‘red tape(compliance costs)’
- removing the dangerous possibility of regulators being ‘captured’ by ‘rent seeking’ regulated busineses, thus facilitating corruption
- more efficient use of resources coz competition
whats the theory of contestability
the theory of contestability suggests that removing barries to entry would be enough to encourage competition. This led to an acceleration in deregulation in the 90s
agriculture deregulation
single goverment owned businesses had a monopoly on farming produce, which was ended through the regulation. Led to an increase of 36% in the last 15 years of farm production
Transport deregulation
aviation occcured in 1990 when the two airline policy was ended
for rail the freight industry was deregulated, with the Cth establishing the Australian rail track corporation in 1997
Telecommunications deregulation
Telstra was a monopoly till the 1990s, and after they got accused of anti competitive behaviour
why can deregulation be bad
too much deregulation can lead to market failure, inefficiency and economic instability
What are the two PTE regulation approaches
corporatisation and privatisation
Define corporatisation
Involves the encouragement of PTE’s to operate like private enterprisees, eliminating policitial and bereaucratic supervision. Atteempt to achieve a return on assets similar to the private sector.
eg- Aus post, Energy Aus, Sydney Water
Define Privatisationn
PTE’s becoming private through floating on ASX, as private companies are viewed as more efficienty
eg. Telstra, CBA, Medibank
Costs of microeconomic reform
- can be hard to implement coz it leads to structural unemployment and changes to firms which can damage political support.
- government needs to retrain the workforce which leads to budget deficit
- can lead to increase inequality
Benefits of microeconomic reform
- improved efficiency
- raising multi factor productivity through higher efficiency
- less cost push inflation
- reduced CAD coz exports are better
- reduced long term unemployment
