Microeconomic Policies

Question 1

Define microeconomic policy

Answer 1

Action taken by the government to improve resource allocation between firms and industries, to maximise output from scarce resources

Question 2

What does micreconomic policy focus on dealing with

Answer 2

It aims at improving the economies efficienty, hence shifting the AS curve

Question 3

How can an increase in AS be achieved and which does microeconomic policy focus on

Answer 3

through an improvement in the quality of production or quantity of production. Microeconomic focuses on quality of production to improve efficiency

Question 4

Whats the microeconomic policy impact time like

Answer 4

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

Question 5

define structural change

Answer 5

structural change are shifts in the pattern of production in an conomy, reflecting changes in technology, consumer demand, global competitiveness and other factors

Question 6

What three types of efficiency does micreconomic policy aim at targeting

Answer 6

technical, allocative and dynamic efficiency

Question 7

Define technical efficiency

Answer 7

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

Question 8

Define allocative efficiency

Answer 8

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

Question 9

Dynamic efficiency

Answer 9

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

Question 10

What are examples of product market reforms

Answer 10

National Competition policy, trade and industry policy, taxation reform

Question 11

Recap the national competition policy

Answer 11

The national competition policy was implemented in 1995, aiming at reforming PTE’s. It has since been renamed to the Competition and Consumer Act

Question 12

What are the main elements of the National competition act

Answer 12

• 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

Question 13

Whats workable competition(CCA)

Answer 13

the idea of sacrificing some competition for economies of scale, reducing long run costs of production

Question 14

Whats trade and industry policy

Answer 14

policy focusing on the reduction in industry protection(tariffs and quotas)which promoted international competition, forcing industries to becomes mroe efficient

Question 15

What did the 1988 and 1991 industry statements aim to do

Answer 15

• 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

Question 16

whats taxation reform

Answer 16

tax reforms focused on increasing incentives to work and raise productivity to ensure a more efficient economy

Question 17

what changes did The New Tax Sustem in 2000 bring about

Answer 17

• 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

Question 18

What are the factor(CELL) market reforms

Answer 18

Labour market and industrial relations and reforma of the Australian Financial System

Question 19

What are the labour market and industrial relations reforms

Answer 19

• determination of wages and workplace conditions- NEXT TOPIC

Question 20

Reform of the Australian Financial System

Answer 20

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

Question 21

what are the benefits of deregulation

Answer 21

• 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

Question 22

whats the theory of contestability

Answer 22

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

Question 23

agriculture deregulation

Answer 23

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

Question 24

Transport deregulation

Answer 24

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

Question 25

Telecommunications deregulation

Answer 25

Telstra was a monopoly till the 1990s, and after they got accused of anti competitive behaviour

Question 26

why can deregulation be bad

Answer 26

too much deregulation can lead to market failure, inefficiency and economic instability

Question 27

What are the two PTE regulation approaches

Answer 27

corporatisation and privatisation

Question 28

Define corporatisation

Answer 28

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

Question 29

Define Privatisationn

Answer 29

PTE’s becoming private through floating on ASX, as private companies are viewed as more efficienty
eg. Telstra, CBA, Medibank

Question 30

Costs of microeconomic reform

Answer 30

• 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

Question 31

Benefits of microeconomic reform

Answer 31

• improved efficiency
• raising multi factor productivity through higher efficiency
• less cost push inflation
• reduced CAD coz exports are better
• reduced long term unemployment