Supply-side Policies Flashcards
Competition policy
Government policy directed at encouraging competition in the private sector: e.g. the investigation of takeovers or restrictive practices, regulation of monopoly power.
Competitive market
Where no single firm has a dominant position and where the consumer has plenty of choice when buying goods or services. There are few barriers to the entry of new firms.
Ease of entry
The ease with which a business can enter a market in search of a profit. When barriers to entry are low, a market can grow, increasing competition between firms and creating new jobs.
Geographical immobility
Barriers to people moving from one area to another to find work.
Immobility of labour
Barriers to the movement of people between areas and between jobs.
Incentives
Incentives can be used to make goods and services markets, as well as labour markets, work more efficiently and therefore creating greater productive capacity.
Infrastructure
The transport links, communications networks, sewage systems, energy plants and other facilities essential for the efficient functioning of a country and its economy.
Occupational immobility
Workers having the wrong skills for available job vacancies. This can be overcome by giving labour transferable skills.
Poverty trap
The poverty trap affects people on low incomes. It creates a disincentive to look for work or work longer hours because of the effects of the tax and benefits system.
Productive potential
Productive capacity of the economy – boosted by high quality capital investment.
Productivity
How much output is produced for a given input (such as an hour of work).
Pro-market supply-side policies
These policies focus on reducing the size of the state and extending the role of market forces in allocating scarce resources. For example: Cutting government spending (including welfare) and borrowing, lower business taxes to stimulate capital investment spending, reducing income tax rates to improve work incentives.
Relative poverty
Relative poverty measures the extent to which a household’s financial resources falls below an average income threshold for the economy.
Spare capacity
When a business is not making full use of its available capacity – there are spare factors of production including land, labour and capital. When an economy has plenty of spare capacity, short run aggregate supply is elastic, and the output gap is negative.
State driven supply-side policy
When a government believes that active intervention in markets can help achieve increased productive capacity and competitiveness. Examples include: State investment in public services and critical infrastructure, a commitment to a minimum wage and/or living wage to improve work incentives & productivity in the labour market, higher taxes on the wealthy to fund public and merit goods.
