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economics yr 12 > topic 4 micro > Flashcards

topic 4 micro Flashcards

1
Q

what is microeconomic policy?

A

focuses on the individual parts of the economy and how to improve the efficiency in the distribution, exchange and production of G&S of value to increase productivity and shift AS curve right
- long term and structural
- decrease cost, increase cost and quantity

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2
Q

key micro reform focuses influences supply side to improve:

A
  • Productivity
  • International competitiveness (PQRS)
  • Efficiency (technical, allocative and dynamic)
  • Structural change
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3
Q

major components of AS (quantity)

A
  • labour force = increases through high population growth, immigration and participation rates
  • capital stock = increases through savings and investment rises (private and public)
  • natural resources = increases through new technology development
  • entrepreneurs = increases through capital market deregulation (encourages risk for high reward)
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4
Q

major components of AS (quanlity)

A

improving resources used in production (capital and tech) = increase productivity + trading and education to increase human capital

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5
Q

major components of AS

A

quality and quantity of FOP

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6
Q

efficiency is

A

lowest average cost = about cost
microeconomic policies are designed to maximise total production without more resources

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7
Q

technical efficiency def

A

producing output at minimum average cost (technical optimum)
- must talk about LRAC

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8
Q

allocative efficiency def

A

allocating reousrces efficiently in best meeting the needs of society –> achieved by minimising the opportunity cost of available resources and maximising utility

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9
Q

dynamic efficiency def

A

ability to adapt to changing economic situations over time.

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10
Q

productivity def

A

output per unit of labour or capital employed over time

labour productivity = total output/labour input (per period)

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11
Q

multifactor productivity def

A

a measure of productivity that attempts to account for all input into the production process, not just labour

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12
Q

australia’s productivity will increase due to

A
  • increase capital deepening NOT widening
  • increase human capital through education and training
  • increase labour/capital efficiency due to technological advancements
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13
Q

microeconomic government policies characteristics

A
  • directed at AS through product and factor markets
  • improves resource allocation
  • impacts tradeable and non-tradeable sector
  • targets both gov and private owned enterprises
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14
Q

MER 1980s onwards

A
  • national competition policy = deregulation (planes, banking, financial market)
  • decrease levels of industrial assistance
  • privatisation, deregulation, commercialisation and corporationisation of PTEs
  • labour market reforms
  • financial market deregulation
  • tax reforms
  • productivity commission
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15
Q

positives of micro reform

A
  • decrease inflation
  • decrease U/E
  • increase national savings (compulsory super, financial sector reform)
  • decrease CAD
  • increase productivity
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16
Q

commercialisation def

A

pte’s stay in gov’s hands but attempt to function efficiently for-profit with separation from government

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17
Q

corporatisation def

A

pte’s stay in gov hands but use private sector internal anlaysis to improve efficiency

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18
Q

privatisation def

A

selling off state-owned monopolies or public trading enterprises

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19
Q

main microeconomic reform categories

A
  • deregulation (financial sector, agricultural industries, transportation industries, telecommunications industry, continuing regulation)
  • reforms to public trading enterprises (corporation of ptes, privatisation of ptes, nations competition policy)
  • future microeconomic policy
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20
Q

why was financial regulation needed

A

following the financial sector collapse during GFC
- financial crisis blamed on gov high regulation
- allowed banks to take too many risks with investor money
- highlights need for balance between efficiency and consumer protection

21
Q

financial deregulation through

A
  • floating AUD in 1983
  • removal of reserve bank’s direct monetary controls over banks in 1973 (align with market forces)
  • removing barriers for foreign banks to enter the market
22
Q

financial sector purpose

A

Financial sector ensures businesses can access funds for investment and growth through investors who can easily and confidently invest their savings.

23
Q

microeconomic policies

A
  • financial system inquiry = policy review conducted in 2014
  • royal commission into misconduct in the Banking, Superannuation and Financial Services Industry concluded in 2019
24
Q

financial system inquiry

A
  • increased min capital requirements for banks to avoid future crisis (useful in COVID)
  • banned excessive credit card surcharges since 2016
  • recommendations to give ASIC more explicit powers –> not implemented
25
Q

royal commission into misconduct in the Banking, Superannuation and Financial Services Industry

A
  • uncovered dishonest practises
  • found widespread governance problems
  • recommended banning certain commissions charged by mortgage brokers –> not implemented yet
26
Q

agricultural industries in the past

A

single government-owned businesses or industry cooperatives had a monopoly on buying farmers’ produce

27
Q

deregulation of agricultural industries

A

has increased competition in farm produce markets and diversified outputs
- agriculture is one of the least regulated industries
- annual agricultural productivity decreased from 20% in mid 20th century to current 0.5%

28
Q

transportation industry deregulation

A
  • 1990 = domestic aviation industry deregulation
  • 1997 - commonwealth and state governments establishing Australian Rail Track Corporation (ARTC)
29
Q

aviation industry deregulation

A
  • ended 2 airplane (qantas and virgin) policy since 1952
  • several international airlines entered AUS
  • 2020 COVID-19 lockdowns pushed the Virgin group into insolvency.
30
Q

Australian Rail Track Corporation (ARTC) establishment

A
  • manages 10,000 national interstate rail network
  • ARTC sells access to privately owned freight businesses such as Pacific National and oversees maintenance of the network and new capital works
31
Q

telecommunications industry deregulation

A
  • in 1990s market opened to many new new telecommunications businesses from Telstra monopoly
  • decreased telecommunications costs by increasing competition
  • With NBN roll out in 2010s, Telstra was separated from the infrastructure of businesses that offer telecommunications = increase competition
32
Q

continuing regulation

A

australia has repealed many regulations however:
- environmental reforms
- construction, energy and transport = safety
- electrical, gas, water, postal and telecommunications = decrease prices
- emerging areas (e.g gig economy) = facilitate infrastructure

33
Q

main microeconomic reforms to promote efficiency in PTEs

A
  • corporatisation = Encourages PTEs to operate independently from the government as if they are private business enterprises.
  • privatisation = Sells of PTFEs so that they do become private enterprises (in whole or in part).
34
Q

corporatisation of ptes

A
  • eliminates political and bureaucratic supervision
  • Makes public enterprise managers accountable for enterprise performance
  • operate in competitive markets but must comply with competitive neutrality laws (ensure PTEs don’t receive artificial competitive advantages)
  • E.g Australia Post, Energy Australia and the Sydney Water Corporation
35
Q

privatisation of ptes

A
  • Raises one-off revenues
  • Increases competition
  • Encourages more rational management and pricing behaviour
  • Forces businesses to become more efficient
  • e.g Medibank Private = 38 years in government ownership was sold for $5.6B in 2014
  • e.g assets including electricity “poles and wires” business = sold for $20B = funded light rail project, second harbour rail crossing and the extension of the North West Rail Link
36
Q

gov rare regulation

A

government established a new PTE to operate an optical fibre telecommunications system
- National Broadband Network (NBN) in 2009 = cost $51B to build = one of the largest in the country

37
Q

broad national competition policy

A
  • created in response to 1992 Hilmer report (review of eco competition)
  • Competition policy implemented in 1995 aims to promote competition in markets
  • increases efficiency and decreases prices.
38
Q

in NCP gov agreed to

A
  • increase competition in industries with monopolies (e.g electricity, gas, water, rail and road transport)
  • remove special provisions that advantage PTEs over private sector competitors
  • established the national competition watchdog, Australian Competition and Consumer Commission (ACCC) –> in 2020 recorded $240M penalties
  • regulate cost of access to infrastructure
39
Q

professor ian harper report in 2015

A

recommended that competition principles should be incorporated into a wider range of government regulations (e.g services such as health and aged care)
- Productivity Commission (PC) said public spending was $200B per year on human services
- review said reform would increase EG as much as the first round of competition policy reforms in the 1990s
- not implemented

40
Q

changes made to Australia’s competition policy regime in 2017

A

expanded law of misusing market power
- businesses should not decrease prices or refuse to supply G&S
- “Concerted practices” were also banned; they include actions such as sending price information to competitors
- Previously regulators must prove that a business actually intended to harm competitors while now regulators only have to establish that the business practice in question had the effect of harming competition

41
Q

commonwealth and state government consolidation

A
  • e.g limited progress with a set of “seamless national economy” reforms under Rudd and Gillard (2007-13) = estimated to boost GDP by 2% in 2014
  • e.g turnbull’s unsuccessful implementation of its planned National Energy Guarantee reforms in 2018
41
Q

long term trend of microeconomic policy

A

The mid 1980s to early 2000s saw extensive microeconomic reforms while fewer reforms have been achieved in the past decades (mainly macroeconomic).

42
Q

COVID recovery phase –> revisit micro

A
  • included replacing long-standing Council of Australian Governments (COAG) with a National Federation Reform Council (NFRC) based on “national cabinet” success btw federal and state in COVID
  • few signs of acceleration in difficult areas of reform
42
Q

important microeconomic reforms on the agenda

A
  • better consolidation between Commonwealth and state governments in areas where Australian Constitution gives states the power
  • 2020 COVID recovery phase to revisit microeconomic policies regarding taxation, industrial relations and business regulation
  • The Productivity Commission outlined Australia’s future microeconomic reform priorities in the 2017 “Shifting the Dial” report (increase AUS GDP by $80B a year)
42
Q

Productivity Commission “Shifting the Dial” report in 2017

A
  • health (more flexible, reduced support for inefficient services, alcohol tax reform, etc.)
  • education (extend consumer laws to universities, independent assessment of skills at university, etc.)
  • city (changing public transport infrastructure, competition principles for land use, road use charges, etc)
  • market (encourage innovation, tax reforms, etc.)
42
Q

overall benefits

A
  • greater efficiency and productivity growth
  • new businesses and job opportunities
  • higher EG and SOL
  • low inflation
43
Q

overall costs

A
  • higher U/E in short term
  • closure of inefficient businesses
  • greater work intensity
  • less equal distribution of income
44
Q

productivity growth

A
  • Between 1990-2001 = 2.2% growth per year
  • post-2001, productivity growth slowed to below 1% per annum
45
Q

ACCC action

A

economics yr 12 (12 decks)

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