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Unit 4 AOS2 Economics (Aggregate Supply Policies) - Coggle Diagram
Unit 4 AOS2 Economics
(Aggregate Supply Policies)
Key concepts
Aggregate supply is the willingness and ability of our producers to supply and our capacity to supply at each price level
Aggregate supply policies seek to grow the productive capacity or potential of the economy in the long term, by increasing the willingness and ability of suppliers of g/s to produce, raising level of efficiency
Aim of AS policies
increase quality and quantity of resources
increase productivity
lower production costs for firms
Operation of AS policies
Quality & Quantity
Increase labour participation (via education, skilled migration or tax policies) or quality through same things
preserve natural resources improving quality and quantity of raw materials and resources
increase ability and willingness to produce and decrease cost of production, improving productivity and thus AS
Productivity
an improvement in the level of output for any given level of input
driven by:
more efficient resource requirements
an improvement in quality of our resources (better skilled workers, better tech and capital resources)
Cost of production
any initiative that improves productivity or quality of resources lowers the average unit cost of production (cheaper to produce same amount)
IMPACT ON
International competitiveness: as costs of production fall due to productivity and quality improvements in resources, firms pass on these costs to consumers in the form of lower prices, making exporting firms more competitive
Productive Capacity: As productivity levels rise, more outputs can be produced by the same number of resources. An increase in quantity of resources leads to increase in potential output and therefore total possible production level increases
Aggregate supply: if average costs of production fall, firms will be more willing to produce higher levels of output. Also due to productivity gains, total productive capacity increases. Both increase ability and willingness of producers, increasing AS
Education and Training
Recent budget policy: $319.50 for Commonwealth Prac Payment for teaching nursing students
involves any spending on education and training vital to improving skills and knowledge of the current and future labour force. Helping to improve quality of labour, increase occurrence of innovation and reduce skills shortages.
improves productivity due to increased quantity and quality of labour resources > more comp for work > drives productivity and higher output.
decreases unit costs for Aus businesses
reduces skills shortages reducing capacity constraints
improves competitiveness as we are able to compete with global comp in both price and quality with better knowledge and skills
AS side: increases ability/willingness to produce, shifts curve to right and increases productivity capacity, helping achieve 3 goals.
living standards: improved comp > sell more better quality and priced exports > increases jobs and growth > decreases inflation > improved material living standards
as people get access to higher skilled jobs and training it increases job satisfaction (non material living standards)
Trade Liberalisation
The removal of barriers and protection to local industry by reducing tariffs and subsidies, abolishing quotas and signing of free trade agreements
Recent policy: Aus-UK free trade agreement: No tariffs on 99% of Aus exports to the UK (encouraging economies of scale)
Long term effects: long term, drives firms to innovate and boost productivity to stay competitive. By reallocating resources to their most efficient uses, businesses lower costs and enhance productivity, improving international competitiveness and AS
Short term effects: broadly negative as local industry is exposed to overseas comp and may struggle to compete with cheaper of better quality companies overseas, and may be forced to downsize or shut down > causing job loss and decreases AS
high quality and more affordable goods, improvement in job satisfaction due to innovation and creation of high quality jobs > boost living standards
Skilled Immigration
effect on participation: Almost 100% of skilled migrants will enter labour force, increasing participation rate (labour force / working age population)
effect on productivity: skilled migrant bring unique skills, knowledge and innovation to Australia, filling skills shortages and increasing competition for jobs > boosting productivity
impact on AS: increase ability/willingness, increases productive capsity and shifts AS curve to the right as we are more competitive and have reduced cost of production
effect on population and labour force: The ageing population is a large portion of skilled, knowledgeable and experienced workers leaving the labour force and retiring. (leads to capacity constraints and shortages in economy > replace through migrants > increases population + fills gaps)
impact on living standards:
STRENGTHS
increased international comp creates jobs and growth in export industry that flows back into economy
brings new cultures and acceptance into aus
WEAKNESSES
some aussies may lose job due to increased comp
decrease access to infrustructure (schools, hospitals, green spaces, roads etc.)
pressures on existing population
Recent policy: fast track visa for immigrant with green energy skills
Market based environmental policy: Safeguard mechanism (Emissions Trading Scheme)
Involves creating a price for carbon, govt issues only limited no. of carbon credits to businesses giving them right to emit limited amount of carbon. These credits are then traded amongst businesses creating a market for carbon. Firms have incentive to reallocate to cleaner energy as they have to pay to emit, also incentive to reduce carbon so they have credits leftover to sell to other producers more money.
Impact in short term: creates higher cost of production that can decrease international comp if others don't follow, as business must reallocate resources toward non carbon emitting activities > decreasing productivity as resources are allocated away and may be wastage. This is likely to cause job losses in carbon industries like coal/gas mining and decrease living standards
Impact in long term: increases environmental stability and preserves nations future productive capacity by reducing likelihood for extreme weather, making it easier to produce and increasing ability and willingness due to continued access to environment and resources. Improves intertemporal efficiency as we continue to balance today's needs with future needs. It also creates jobs in 'green' industries improving living standars.