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Supply side policies/ International trade (Market oriented supply side…
Supply side policies/ International trade
May help to reduce
Unemployment
Inflation
Increase country's output and rate of economic growth
Main determinants of productivity
investments in physical capital and R& D
investment in education and infrastructure
training of workforce
innovation and application of technology
creation of new firms
management of factors or production
Market oriented supply side policies
( increase market output by :arrow_up: role of market and :small_red_triangle_down: role of GOV)
Reduce GOV expenditure
Private sector is less bureaucratic and more efficient
Tax Cuts
affects choices that individual and firms make:
:recycle:tax on income earned -> incentive/ hours of work
:recycle: tax on savings income-> preferred mode of savings and funds avail for investments
:recycle: tax on profits-> affect incentives for firms to invest
Benefits:Substitution effect of tax cut
( sub work for leisure , lesser work hours)
Counter benefit: income effect
(work less and still maintain standard of living)
Reduce Power of Labour
Reduce workers' ability to demand high wages-> firm's profits rise and more investment to fuel growth; :small_red_triangle_down:cost-push inflation
Gov measures
:guardsman: Resisting strikes in public sector
:guardsman:Prevent workers taking axn other than against direct employer
:guardsman:Giving employees right not to join unions
Reduce power of labour because
:zap: more flexi labour market
:zap: exposure to international competition
Reducing welfare
Conditional unemployment benefits
May encourage unemployed to look for work in prosperous place
Interventionist policy - retrain unemployed
Encourage competition
:black_joker: Privatisation of nationalised companies
:black_joker: Deregulation
:black_joker: Introducing market relationships into public sector
:black_joker: Private-Public Partnerships
:black_joker:Free trade and capital movements
Interventionist policy
stems from market failing to provide sufficient R&D and training
Possible policies
:bulb:Nationalisation eg transport
:bulb: Direct provision of capital ( building infrastructure, relocate government offices to depressed areas)
:bulb: R & D(see R and D policies)
:bulb: Training and Education ( grant tax reliefs to firms)
:bulb:Investment( tax relief, stable macroeconomic environment, equity finance backed by GOV)
:bulb: Assistance to small firms (advisory services, tax reliefs/ grants)
:bulb: Advice and Persuasion ( Gov active discussions with industry)
:bulb:Information ( provide market info, public research )
International Trade
Globalisation
*process of developing increasing political/ cultural/ economic ties with ppl ard the world
:small_red_triangle_down: lower pdn costs, :point_up::skin-tone-2:profits
:small_red_triangle_down:Prices; improve standard of living for developing country
Drivers for GLOBALISATION
Market Drivers ( similar lifestyle)
Cost Drivers (lower Pdn costs)
Government Drivers (free markets economies, 0 tariffs)
Competitive Drivers (global business strategies)
Benefits
:heavy_plus_sign:increase opportunities for specialization
:heavy_plus_sign: faster diffusion of new tech
:heavy_plus_sign: greater competition, :small_red_triangle_down:Price
:heavy_plus_sign:closer political ties
:heavy_plus_sign: cultural eXcg
Critics
:heavy_minus_sign:growing inequalities
:heavy_minus_sign: exploit poor countries
:heavy_minus_sign: environmental problems
:heavy_minus_sign: political, economic and cultural domination by MNCs
Trading Patterns
Mainly in BRICS*
Advantages of trade
Specialisation as basis for trade/EOS
(Taking advantage of different endowments of factors of production)
:check: Absolute advantage
:check: Comparative advantage
(when the opportunity cost of producing a good differs between 2 countries, each country can gain if it produces and exports goods that it faces a lower opportunity cost and imports the goods it faces a higher opportunity costs)
Exchange ratio must be between the 2 non trading opportunity cost ratios
1 CD: 0.4 Wine
Limits
in reality, diseconomies of scale i.e limited land for production or vice versa
Other reasons for trade
Decreasing costs due to economies of scale
Differences in demand bet countries
Increased competition
Engine of Growth
Political /Social/ Cultural Exchange
Terms of trade index
= (index of export prices/ index of import prices) * 100
[changes are caused by d(market conditions)]
Restricting Trade
through tariffs on imports, import quotas, subsidies for domestic pdts, admin regulations, dumping
Arguments for restricting trade:
:check:Infant industry argument
:check:Reduce reliance on goods with little dynamic potential
:check:Prevent dumping/ other unfair trade practices
:check:Prevent establishment of foreign monopoly
:check:To spread risks of fluctuating markets ( for single entity economies)
:check: To reduce influence of trade on consumer preferences
:check: To prevent importation of harmful goods
:check: To take account of externalities
Argument against
:warning: take advantage of market power in World trade
:warning:To protect declining industries; prevent consumers from buying cheaper goods
Problems w protection
:star:Cost of protection
Reduced choices
Protection