unit 4 aos 2 Flashcards
AS policies
- improve a nations productive capacity
- government strategies designed to make supply side conditions more favourable for individuals, firms and industries that produce goods & services, so they are more able to expand output & australia’s productive capacity
> seeks to increase the quantity and quality of resources, increase productivity and reduce production costs, grow profits and increase competitiveness
how does AS policy impact supply side conditions
- impact the quantity and quality of resources available
> encourage growth of productive capacity & potential inflationary rate of EG - raise productivity & lower production costs
> so firms can produce more output from the same inputs & become more profitable & internationally competitive - reduces market failures
> to help improve efficiency in resource allocation & satisfaction of australians wants
aim of AS policy to lift efficiency in resource allocation
grow aus productive capacity & potential level of GDP & AS through increasing efficiency in how resources are allocated
- allocative: resources go where they are most wanted, maximise wb
- productive/ technical: businesses using the least cost method of production
- dynamic: firms being adaptive to changing economic circumstances, improves satisfaction of wants
- intertemporal: balance between employing resources for immediate vs future use, more enviro friendly
aim of AS policy to improve international competitiveness
- forces local businesses to be more efficient, making them more internationally competitive so that they can sell goods at a lower price relative to overseas competitors
- this makes them able to grow sales, boosting output, employment, incomes & LS
aim of AS policy to promote domestic macroeconomic stability
- promotes non-inflationary rate of SSEG
- promotes low inflation by cutting production costs
- promotes full employment
aim of AS policy to support better living standards
- reduces the severity of structural problems
> unemployment, incomes, purchasing power, satisfaction of wants - by increasing the quantity & efficiency of resources available, creating incentives for suppliers & growing productive capacity, AS policies can improve our international competitiveness, strengthen macroeconomic goals, and improve LS
australia’s AS policies
- a budgetary policy used to affect AS
- skilled immigration
- trade liberalisation
- market based environmental policies
budgetary policies used to affect AS
- budgetary policies can make AS conditions more favourable by increasing efficiency, cutting production costs, increasing business profits and competitiveness, and expanding productive capacity
Includes outlays to improve: - infrastructure
- education and training
- research and development
- budget subsidies
- tax reform
one budget policy as an AS policy- training & education
- training & educatipn = greater quantity or quality of labour is = productive capacity is increased
- spending on education and training is designed to increase the quantity and quality of human capital
> improves skills of labour and raises productivity - improved quality and quantity of labour resources helps to reduce costs of production for businesses
- skill of labour is also becoming increasingly important with technological advancements, increasing the need for education & training to ensure workers remain productive & can contribute to evolving economy
recent training and education budgetary policy
2024-25 budget:
- funding towards a wage increase for early childhood education and care workforce
- investing in skills for priority industries
> any budgetary policy that improves the delivery of education, and thus improves the quality of the labour force, will help boost AS via improved labour productivity & skill, and therefore productive capacity. will also assist achievement of macro goals
infrastructure budgetary policy
- physical structures and capital that support EA, including roads, railways, airports, hospitals, communications and digital technology structures and public transport
- spending on infrastructure helps to reduce costs of production for businesses across the economy, by reducing bottlenecks and congestion and speeding up business operations.
- contributes to improved productivity through reduced costs of production & increased efficiency, as workers and output can be more efficiently transported
- enhances efficiency, productivity and improves AS over the medium-longer term, and therefore helps to improve int. competitiveness, achieve domestic macroeconomic goals and lift living standards
purpose of the skilled immigration policy
- australia has lifted its immigration target due to skills shortages
> due to being an underpopulated country & having an ageing population - eases problems cause by an ageing population
> worsening labour shortages
> relatively high wage costs
> erosion of govs financial position (due to more outlays on pensions and healthcare)
skilled immigration policy
- designed to attract migrants who make a significant contribution to the economy & fill positions where no australian workers are available
- based on a system reflecting how likely a person is to make the greatest economic contribution
- skilled migrants have a high participation rate
features of the policy:
> sets annual targets to manage the number of people allowed visa entry
> allows flexibility since the annual intake target can vary to reflect changing domestic conditions & overseas circumstances
> gives priority to migrants with special types of skills where we have shortages
> encourages those in younger age groups, slowing effects of our ageing population
effect of skilled immigration policy on population
- increases population numbers, easing the problem of underpopulation
- slows the effects of our ageing population by introducing young skilled workers into the labour force
impact of skilled immigration on productivity & participation
- increases the size of the labour force, its productivity & participation rate
- skilled immigrants have higher levels of education than aus-born residents, which increases the quality of human capital resources, slows wage costs & improves business competitiveness, profits and productive capacity, strengthening AS
- the increase in participation rate enhances productive capacity, boosts AS & grows our potential level of EG, employment & income growth
impact of skilled immigration on international competitiveness
- for local producers to sell their goods overseas attractive prices they need a skilled & innovative workforce
- helps firms gain greater economies of large scale production, as they can spread production costs more thinly as output expands for a bigger market, lower prices = more competitive
impact of skilled immigration on the achievement of domestic macroeconomic goals
- slow inflation:
> adds more to supply than demand for labour, reducing labour shortages and wage costs
> could contribute to inflation (add to demand for housing) - increase the rate of EG:
> boosts productive capacity & size of the market
> added stress on water, land for housing, non-renewable resources due to growing pop. - help create full employment:
> fills jobs that cant be sourced locally
> reduces shortages and allows businesses to start up/ expand
> reduces unemployment rate, increasing AD, EA & demand for labour > reduces cyclical unemployment
impact of skilled immigration on living standards
- material:
> eases labour shortages that would have limited business expansion, boosts productivity, and keeps wage costs lower, improving the purchasing power of incomes –> strengthens eco WB by making AS conditions more favourable for producers & making a stronger domestic macroeco environment - non-material:
> more creative, multicultural society, improving WB
> could decrease WB by adding to traffic congestion, work travel times (reducing leisure time) & environmental challenges
weaknesses of skilled immigration policy
- not a permanent solution
> immigrants will age too, so doesn’t permanently solve the issue unless rates keep rising - economic benefits are relatively small
> not a big impact on GDP - non-material trade offs
> enviro problems, resource depletion, greenhouse gas emissions, overcrowding, traffic congestion
trade liberalisation
AS policy that implies reducing protection of local industries from import competition
> cutting tariffs, import quotas, signing FTA’s
- ways it grows efficiency in resource allocation & boosts productive capacity:
> encourages specialisation in areas where the comparative cost advantage is greatest
> local firms restructure operations to raise efficiency due to o/s competition
> grows the size of markets
features of trade liberalisation policy- tariff cuts
tariffs: indirect tax levied on imported goods, making them less attractive to local consumers
- high tariffs limit foreign competition, driving up prices & causing resources in local markets to be allocated inefficiently, reducing purchasing power
- the reduction of tariffs has helped to improve allocative, technical & dynamic efficiency
- encourages local firms to be more internationally competitive by forcing them to restructure production and lower costs
> helps to expand aus productive capacity, AS, incomes & LS
features of trade liberalisation policy- reduced subsidies
- subsidies to local producers are designed to cover some production costs
> can sometimes cause firms to misallocate resources - trade liberalisation aims to reduce these, as they force firms to reallocate resources to areas where they have the greatest comparative cost advantage
> grows efficiency & AS
> there has been a gradual reduction in subsidies in recent years, with the exception of the 2020-21 pandemic to prevent business closures
features of trade liberalisation policy- abolition of import quotas
import quotas restrict supply of o/s goods allowed into the country to protect local businesses
- adoption of trade liberalisation has progressively abolished these import quotas, resulting in freer trade, increased efficiency in resource allocation, boosting productive capacity & SSEG
> slows cost inflation as firms have to keep prices low relative to o/s competitors = ^ LS
features of trade liberalisation policy- increased FTA’s
- aus government has been trying to develop export markets abroad by reducing protectionism & signing FTA’s
> eg. aus-UK FTA, 2023 - these expose local firms to greater overseas competition, forcing them to specialise in areas of production where they have the greatest comparative cost advantage & become more cost efficient in order to improve their competitiveness
> firms that can’t reduce their costs may close, leading to structural unemployment
comparative cost advantage
principle that a nation/firm should specialise in areas of production where it has the greatest cost advantage, or least cost disadvantage
> grows productive capacity, AS & competitiveness
effects of trade liberalisation on macroeconomic goals- low inflation
- specialisation in production as a result of increased international competition causes resources to be allocated to their most efficient use, and away from more expensive areas, slowing inflation
- grown our access to larger markets abroad, allowing local firms to gain economies of large scale that cut costs of production –> lowers prices
- lower costs of imported equipment & materials lowers costs of production
- firms restructuring their operations leads to decrease in production costs & lower prices
effects of trade liberalisation on macroeconomic goals- SSEG
- leads to greater production specialisation, resulting in more efficient allocation of resources –> means that more output is gained from the same inputs, growing productive capacity, PPF & increasing rate of GDP growth
- restructuring operations more efficiently to survive competition from imports increases productive capacity
- allows firms access to better equipment & materials at a lower cost –> expand production
- grown size of export market, increases sales & boost production levels & GDP
effects of trade liberalisation on macroeconomic goals- full employment
in the short term:
- prevents the start up of infant industries, and could lead to closures of businesses that are uncompetitive & temporary structural unemployment
in the long term:
- boosts efficiency & slows inflation, making businesses more internationally competitive & encouraging them to expand & therefore reducing structural unemployment
- bigger markets for our exports abroad, increased sales & business expansion –> job vacancies
- firms can reduce their costs of production, reducing business closures & structural unemployment
effects of trade liberalisation on living standards
- encourages int. competitiveness & business expansion, creating more jobs
> higher per capita incomes, consumption and therefore material LS - by expanding export markets & lowering structural unemployment, NMLS have improved due to greater happiness, mental health and less financial stress
- short term ls could be undermined due to business closures & structural unemployment & lower incomes
> impacts MLS and NMLS by adding to stress & unhappiness for those who have been unemployed
weaknesses of trade liberalisation
- trade-offs, in greater efficiency in resource allocation
- political constraints, due to some people having more benefit than others, results in opposition from parliament & voters
- long time lags, takes a long time to implement
market based environmental AS policy
market-based environmental policy seeks to reduce the release of greenhouse gas emissions into the atmosphere, which are linked adversely with climate change
> important to take a long term view of sustainability & consider intertemporal efficiency in resource allocation when promoting better AS conditions, to ensure LS of future generations are not undermined
- carbon tax
- emissions trading scheme
- subsidies designed to change behaviour of producers & consumers that damage the enviro
why are environmental policies needed
- climate change, unfavourable AS condition which limits productive capacity & AS
- climate crisis, which threatens wellbeing in many ways such as:
> global warming
> melting of polar ice caps & rising sea levels
> damage to the ozone layer
> increased frequency of extreme weather events
safeguard mechanism/ carbon tax
- involves the use of negative incentives designed to change the type of g&s produced & consumed, helping to reduce greenhouse gas emissions & climate change
- a levy imposed on firms & households whose activities result in excessive carbon emissions & negative externalities to third parties
> ensures costs aren’t passed onto others uninvolved with the harmful activity, the polluter pays - creates a financial incentive to lower emissions
> the imposition of the tax makes unsustainable supply less favourable for producers, less profit causes them to reallocate resources to a more enviro efficient use
effect of carbon tax (safeguard mechanism) on intertemporal efficiency
- increases intertemporal efficiency, by finding a better balance between resources for now rather than future use
- the effectiveness of the tax depends on the amount
> too low = people will pay and it will have no effect
> too high = consumers may import from o/s to avoid the tax
effects of carbon tax (safeguard mechanism) on living standards
- improves NMLS, by encouraging firms to be more sustainable in production and having less harm on the environment, so future generations can enjoy same LS as now
- may undermine MLS, as firms may have to slow production, or those with high emissions may not be able to afford the tax and close, reducing aus productive capacity & AS
- may have little impact in the short term, but will be beneficial in the long term in reducing environmental degradation.
how does AS policy complement AD policy
- AS policies work to improve productive capacity, while AD policies work to increase AD and spending
- AS policy= long term, AD= short term
> work together - AD policies work to stimulate AD and spending in the economy, promoting economic growth, AS policies allow for output to be increased to match higher levels of AD, so that there are no shortages and inflationary pressures.
