Topic 4 - Microeconomic policies Flashcards
What are microeconomic policies?
Refers to policies that are aimed at individual industries, and seeks to increase aggregate supply by increasing efficiency and productivity of producers
These focus on the LONG TERM IMPACTS
WHat is the overall aim of MER?
The overall aim of MER is to encourage the efficient operation of markets and increase aggregate supply by raising productivity, improving flexibility, and responsiveness to change, making the eco more adaptable to change and encouraging Australian producers to take on ‘world best’ practices
Does MER influence D or S?
It influences S, and supply side issues
Why are MERs important?
MERs are important because many of Aus’s eco problems are caused by structural factors that cannot be addressed through macroeconomic policies which simply aim to manage the level of eco activity. `
WHat is structural change?
Structural changes refer to shifts in the pattern of production that reflects changes in tech, consumer preferences, global competitiveness, and other factors. It results in some products, processes and even entire industries disappearing while other emerge
How can structural change by caused? (2)
Market induced - caused by changes in consumption patterns, tech dev, demographic factors etc.
Government induced - caused by changes in training policies, industry or environental regulations
What is allocative efficiency?
Allocative efficiency refers to the economy’s ability to shift resources to where they are most valued and can be used most efficiently
What is technical efficiency?
Technical efficiency refers to the eco’s ability to produce the max level of output from a given quantity of inputs
what are product markets?
the product market is the marketplace where final goods or services are sold to businesses and the public sector
WHat are factor markets?
a factor market is a market where factors of production are bought and sold.
What is deregulation?
Simplification or removal of rules that constrain the operation of market forces, and it aims to improve the efficiency of industries. Excessive deregulation imposes additional costs, constrains eco growth and undermines competitiveness, leads to market failure and eco instability therefore effective dereg involves a balance between policy goals
What are the different sectors we should know the impact of MER reforms on? (4)
Financial sector - Factor Market
Agricultural industries - product market
Transport industries - Product market
Telecommunications industries - Product market
What were the measures implemented for reform in financial sector?
Floating of the AUD
Removal of the RBA’s direct monetary controls over banks
Use of open market operations by RBA to conduct MP
Removal of barriers to foreign banks entering Aus
What were the impacts on reform in the financial sector? (4)
↑ comp between institutions in the Aus financial system→ allocative efficiency as better allocation of funds
Less stable ER as after dereg through market forces the ER was set
Before dereg in 1972, CA surplus of 2.3%, post-dereg: ↑ in debt due to opening up to international financial markets→ CAD 5.3% of GDP in 1981
Dereg leads to banks taking too many risks with depositor’s money, and has been attributed to as the cause of the GFC
WHat were the effects of reform in the agricultural industry? (3)
Dereg in the agricultural sector has created more competition in markets for farm produce
With dereg, monopolies ended, and farmers were given new incentives to innovate and diversify their outputs
High Productivity growth due to advances in farming technology and chemicals
What were the forms of reform in the Aus transport industries? (2)
Aus’s domestic aviation industry was deregulated in 1990, ending the Two Airline Policy that since 1952 had seen the aviation industry divided between two companies. Several airline businesses have entered the Aus aviation market since 1990. However, the main airline groups are; Qantas/Jetstar and Virgin Australia.
Rail: The efficiency of the rail freight industry has been improved by a range of reforms over the past decade. 1997 establishment of Australian Rail Track Corporation (ARTC) to manage interstate rail. ARTC sells freighting rights to private firms to transport their own cargo. (less monopolising of railway systems)
What were the effects of the reforms in the transport industry ( kinda sketch)
Allows for more competition, and slowly ceasing monopolies in these industries
What were the effects of the reforms in the telecommunications industry?
Prevented a monopoly from the initial telstra monopoly, followed by the Telstra Optus Duopoly.
These were deregulated to increase competition and promote innovation
(Note, Telstra was the dominant business in the industry) Despite the market being opened up in 1990, it led to new telecommunications businesses entering the market and reducing costs, yet Telstra still held the largest market share for landline calls and telecommunication
What are 2 examples of reforms to public trading enterprises?
Corporatisation of PTEs and Privatisation of PTEs
What is a public trading enterprise?
also known as gov business enterprises
What is corporatisation of PTEs?
Making state owned businesses operate using more efficient management structures from the private sector
What is the aim of the corporatisation of PTEs?
Aims to encourage PTEs to operate independently from the govt, as if they are priv business enterprises i.e. eliminating political/ bureaucratic supervision and making managers accountable for enterprise performance and establishing clear managerial objectives
Purpose of corporatisation is to increase efficiency, competition, improve management and pricing behaviour
WHat is the privatisation of PTEs?
Privatisation is when the govt sells PTEs to the private sector → actually become private enterprises, either in whole or in part . Govts have implemented privatisation to raise one-off rev, ↑comp + force efficiency:
What are examples of privatisation of PTEs?
Medibank Private, NBN, Lotto, Qantas and more
What is the purpose of privatisation?
Helps gov saves money and increase efficiency through opening up the market. It also allows for one off revenue, which can be used to find a budget deficit
What is the National competition policy?
Aims to promote competition in markets so that firms increase efficiency and lower prices for consumers (product market reform). It was formed in 1995
What is the national competition watchdog?
The national competition watchdog is Australian Competition and Consumer Commission (ACCC)
What is part of the National Competition Policy? (5) just some
govts agreed to implement reforms that would increase comp in the sectors where they operated monopolies, such as electricity, gas, water and rail transport
Govt also agreed to remove special provisions that gave publicly owned enterprises an advantage over private sector competitors (competitive neutrality principle)
Workable competition - to achieve IC, no of firms may need to decrease –> remaining firms can operate on larger scale –> lowest possible LRAC
Converted practices are also banned; they include actions such as sending price information to competitors, even if there is no formal agreement to collude to raise prices
Business are banned from reducing competition in the market by lowering prices, refusing to supply goods or services or other behaviours
What acts are outlawed under the Competition and Consumer Act 2010?
Monopolisation - firm uses its dominant market position to eliminate competition eg through temporary price cutting
Price discrimination - firm sells the same type of g/s in different markets at different prices (for reasons not related to diff. costs e.g. for transport)
Exclusive dealing - firm sets conditions for S that exclude retailers from dealing with other competitors
Collusion and market sharing - firms get together to fix prices or agree on a market sharing arrangement that reduces effective comp between firms
What are labour market policies?
The labour market policy covers public interventions in the labour market aimed at reaching its efficient functioning and correcting imbalances. The primary target groups are those people unemployed or employed at risk of involuntary job loss.
What was the traditional regulation of labour market? (Prior to Fair Work Act)
Aus has traditionally regulated its labour market through a mix of federal and state laws, with significant overlaps between the two different systems.
What did the traditional regulation of labour market involve into?
Over time, Aus developed separate industrial relations system - with six different state systems plus the federal system
WHat were the industrial relations policies?
These systems establish minimum wages and conditions for employees through a system of industrial awards for employees, based on their industry or their occupation. Some awards are made at a Commonwealth level, while others could be made at a state level.
What happened with industrial relations which caused the movement to a singular national workplace relations system?
Inefficiency of separate state and federal systems –> fair work act 2009 creation
What are the roles of the national system in labour market policies?
Enforcing the Fair Work Act, which covers 9/10 workers in Aus, however WA is the only state that has not referred any powers to the federal government
Commonwealth replaced most state based awards with simpler federal awards, and also established a national system of occupational health and safety legislation, replacing separate state systems
What are the roles of the state system in labour market policies?
State and territory regulation of the labour market is now limited mostly to state gov employees and to a smaller range of specific issues such as the regulation of workers’ compensation, public holiday and long service leave.
What are the dotpoints under; ‘the national system for determining’?
minimum employment standards
Minimum wages
Awards
Enterprise agreements
Employment contracts for high income earners
What are the national employment standards?
These are a set of 11 minimum entitlements for employees covered by the Fair Work Act 2009, and applies to all national system employees and employers.
It creates a safety net entitlement for all national system employees.
