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MICROECONOMIC POLICY (Rationale (Efficiency (increasing real income
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MICROECONOMIC POLICY
Rationale
Efficiency
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technical efficiency: maximising output in the long run using minimal average cost (at technical optimum)
allocative efficiency: resources being allocated to industries which reflect consumer demand
dynamic efficiency: industries adapting to changing economic circumstances by using the latest cost reducing technology to meet consumer preference
a shift in the pattern of production taking place and improvements in the levels of output and productivity
major changes in 1980s, 1990s, 2000s:
- increasing importance of service sector
- technological change through use of ICT, reducing production costs and prices
- increasing integration with exports and imports
- 12% of GDP (1990) => 20% (2016)
- growth of the East Asian market in influencing Australian trade
Productivity
the level of output per unit of input
e.g. labour, capital producitivity
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Effects on individual product and factor markets, individual industries and the economy
Factor market
Financial System Reforms
- reform was to ensure the efficient allocation of capital resources and the minimization of costs through the processes of financial and technological innovation
- 1983
- abandonment of the crawling peg system and floating of the exchange rate
- entry of 16 foreign banks; effectively creating competition and increasing efficiency
- 1998
- the system of prudential supervision of the financial system was altered
- APRA was established to supervise all deposit taking institutions (DTIs)
- ASIC was given the responsibility for market integrity, consumer protection and dispute resolution
- 2015
- an increase in the capital adequacy of banks against financial shocks
Labour Market and Industrial Relations Reform
- reform began in 1985 with a productivity based bargaining system known as the Two Tier Wage System
- 1991; the principle of enterprise bargaining was introduced to promote labour productivity by linking wage outcomes to productivity improvements
- 1993; Industrial Relations Reform Act encouraged greater labour market flexibility by promoting enterprise level wage bargaining through union Certified Agreements and Enterprise Flexibility Agreements
- productivity index: 58.20 in 1978 => 100.9 in 2018; ave (1968-2018)=83.22
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from 1996 to 2000, tariff fell to 15%; fell to 10% in 2005;
Productivity Commission estimates, benefits from reduced protection was a gain of $4 billion in GDP through additional export volumes and a higher rate of growth #