Yr 11: Micro and Environmental Policies

Question 1

What are microeconomic policies?

Answer 1

Policies aimed at improving the efficiency of markets in order to increase aggregate supply

Question 2

How do microeconomic policies increase efficiency?

Answer 2

They either:

1) Deregulate to allow the free market to allocate resources more efficiently; or

2) Regulate markets to maximise competition between firms

Question 3

What are 3 examples of deregulation to increase efficiency?

Answer 3

1) Labour market decentralisation
2) Trade liberalisation
3) Reforming government-owned enterprises

Question 4

Why does trade liberalisation increase efficiency?

Answer 4

By removing tariffs, firms will become more efficient because:

• Firms will have to compete with foreign rivals, so will find ways to cut costs; and
• Firms that can’t compete will shut down, and resources in the economy will be re-allocated to industries in which the economy has a comparative advantage

Question 5

How does reform of government-owned enterprises increase efficiency?

Answer 5

Government-owned enterprises can be given an incentive to increase efficiency by either:

1) Corporatising (run as a profit-seeking firm with the government as the only shareholder); or

2) Privatising (selling off to shareholders to become a normal profit-seeking firm)

Question 6

How does the government regulate to increase efficiency?

Answer 6

The ACCC enforces the Competition and Consumer Act to prohibit anti-competitive behaviour, such as
- Collusion
- Exclusive dealing
- Misleading advertising
- Mergers that result in excessive market share

Question 7

What is an example of collusion?

Answer 7

Qantas and other airlines secretly agreed on prices for freight - the ACCC fined Qantas $10 million

Question 8

What is an example of exclusive dealing?

Answer 8

In 2020, Peters Ice Cream forced the largest distributor in Australia of food to cafes and convenience stores to have to get Peters’ permission before stocking any rivals’ ice creams.

Question 9

What is an example of the ACCC trying to prevent a merger?

Answer 9

In 2020, the ACCC was unable to prevent the merger of TPG and Vodafone despite arguing that it would “substantially lessen competition” in the telecom industry.

In his final speech as ACCC chief, Rod Sims said Australia’s merger laws are “not up to task”

Question 10

What is causing climate change?

Answer 10

Burning fossil fuels releases greenhouse gas emissions that trap heat in the Earth’s atmosphere

Question 11

Why is climate change an economic risk?

Answer 11

It is resulting in increased frequency and severity of natural disasters, such as floods, bushfires and droughts. This reduces quality of life, and decreases the productive capacity of the economy (e.g. drought reduces farm production; damaged infrastructure reduces production)

Question 12

What are the Australian Government’s emissions reduction targets?

Answer 12

• 43% reduction on 2005 levels by 2030
• Net zero by 2050

Question 13

How and why have Australia’s greenhouse gas emissions changed over the past 20 years?

Answer 13

Have fallen 18% since 2005, but almost entirely because of reduced deforestation and fewer flights during the pandemic

Question 14

How are Australia’s emissions projected to change over the next 10 years?

Answer 14

Projected to fall - mostly because of renewable energy generation getting cheaper and state governments encouraging renewable energy production

Question 15

What is a market-based mechanism?

Answer 15

A policy that manipulates the price signal to internalise the effects of a negative or positive externality, such as a Pigovian tax or cap and trade scheme

Question 16

What are 4 types of environmental policies?

Answer 16

1) Targets
2) Regulations
3) Market-based mechanisms
4) International agreements

Question 17

Why do economists prefer market-based mechanisms over regulations?

Answer 17

Market-based mechanisms are more efficient because they let firms find the cheapest way to solve the problem

Question 18

What is an example of a Pigovian tax to reduce greenhouse gas emissions?

Answer 18

Carbon tax (2012-14) - but was repealed because it was regressive and politically unpopular

Question 19

What is an example of an environmental subsidy to reduce greenhouse gas emissions?

Answer 19

Rewiring the Nation - subsidised loans to firms to build new electricity transmission (poles and wires) to connect to new renewable energy generation in rural areas

Question 20

What is an example of a cap and trade scheme to reduce a negative externality OTHER THAN greenhouse gas emissions?

Answer 20

The Murray Darling Basin Plan - but this was poorly enforced, leading to overuse, toxic water and fish-kills

Question 21

Why is Australia’s emissions reduction due to ‘reduced deforestation’ disputed?

Answer 21

The Australian Government’s methodology for measuring deforestation calculates that deforestation has reduced…

But state governments like NSW and Queensland use a different methodology, and they calculate that deforestation is increasing!

Question 22

What is an example of a cap and trade scheme to reduce greenhouse gas emissions?

Answer 22

The ‘Enhanced Safeguard Mechanism’, which will set emissions caps for large polluters and allow them to trade their permits

Question 23

What are TWO climate change policies that the Australian Government has recently announced to help achieve its emissions targets?

Answer 23

1) The Enhanced Safeguard Mechanism

2) The Rewiring the Nation Policy