Microeconomic policies - supply side Flashcards
What are microeconomic policies
They are government policies targeted at product and factor markets which aim to increase the four types of efficiencies.
- They aim to increase market supply and competitiveness of domestic producers
- they aim to increase the nationa’s potential level of output by making AS conditions more favourable
What are the four types of resource efficiency
- allocative efficency
- productive efficiency
- dynamic efficiency
- inter-temporal efficiency
Describe allocative and productive?
Allocative:
- resources directed as to reflect consumer preferences for g/s –> consumer soveriegnty
Productive:
- resources organised in such a way as to generate greater output per unit of resource input
- relies on labour + capital + multi-factor productivity
Describe dynamic and inter-temporal
Dynamic:
- the responsiveness of resource allocation to changes in consumer market demand
Inter-temporal:
- the balance of resources between current and future production periods
- e.g -> consumption vs. investment spending
What do AS policies seek to do?
- increase the efficiency in our use of resources
- increase the quantity or volume of productive resources available
- increase incentives to motivate individuals and businesses to expand production and capacity
- increase market competitiveness
- reduce any instances of market failure in allocating resources
What are the key differences between AD policies (Fiscal + Monetary) and AS policies (MER)?
- they work in different ways and use different theories
- they work on slightly different problems
- they operate in different time frames
How does AS supply policies aim to promote the achievement of Australia’s domestic macroeconomic goals?
The aus government uses cost-cutting, efficiency-promoting AS supply policies to achieve:
- the aim of boosting the sustainable, non-inflationary rate of economic growth
- the aim of promoting low inflation by cutting production costs
- the aim of promoting full employment, especially in the long run
- greater international competitiveness
Describe the boosting of a sustainable economic growth?
- EG is limited to the speed at which our productive capacity can expand
- the aim is to increase the economy’s speed limit by reducing the contraints limiting efficiency that currently slow Australia’s sustainable growth in production
- leads to greater GDP growth –> higher average real incomes and material living standards
Define productive capacity?
- the absolute maximum level of production that a country can obtain from the available resources at a point in time
Describe the aim to promote low inflation?
Inflation rises with either demand or cost pressures pushing up prices:
- AS policies aim to improve productivity or efficiency, slowing production costs for firms
- lower costs results in cheaper g/s
- slows cost inflation and helps achieve government’s goal
- strengthens purchasing power, international competitiveness and living standards
Describe the aim of promoting full employment?
AS policies help reduce the rate of natural unemployment
Policies can create:
- improved flexibility and efficiency in our use of labour resources
- incentives thar reward efficiency
- an environment where workers have appropiate skills and training
They also help cut production costs and make businesses more internationally competitive:
- leads to greater profits and less firms are forced to close down
- creates more jobs
For the aim of boosting the sustainable rate of EG, what are some examples of AS policies?
- immigration
- investment in infrastructure
- spending on education and R&D
- welfare and tax reforms
For the aim of promoting low inflation, what are some examples of AS policies
- infrastructure investment
- outlays in education and R&D
- tax reforms and immigration
For the aim of promoting full employment, what are some examples of AS policies
- spending on education, training and infrastructure
- welfare and tax reforms including lower rates of company tax
Describe the aim to increase international competitiveness?
- AS policies help businesses sell g/s at lower prices, better meeting customers’ needs than their overseas rival
- makes local businesses more competitive internationally at home and abroad
- done through R&D, increasing efficiency, keeping production costs and inflation rates lower
