2.6.3 Supply-Side Policies - Types and Evaluation Flashcards
(26 cards)
give the main supply-side weaknesses in the UK
- low R&D spending
- low investment
- skills shortages
- economic inactivity
- low labour mobility
- ageing infrastructure
- regional economic imbalances
- productivity gap
give a statistic to back up low investment
business investment fell to just 10% of GDP in 2020, lower than OECD average
give a statistic to back up economic inactivity
400,000 rise in economic inactivity since 2020 - more long-term sick
how does education and training increase quality and/or quantity of factors of production
- increases worker’s skills so increases quality of labour
- more productive workforce, lower unit labour costs
what can be used to evaluate education and training
- benefits tend to be felt in long-term
- young people may emigrate (brain drain)
how does reforming tax and benefits increase quality and/or quantity of factors of production
- reducing out of work benefits at the same time as taxes are cut incentivises people to find work
- increased quantity of labour
what can be used to evaluate reforming taxes and benefits
- depends of there being jobs available
- short term impacts on living standards
how does reducing marginal tax rates increase quality and/or quantity of factors of production
- involves reducing amount of tax paid on last extra £ of income earned (reducing rate on highest bands)
- incentivises extra effort in the form of education, entrepreneurship or investment as less of money earned is taken
what can be used to evaluate reducing marginal tax rates
- Laffer curve
- effectiveness depends on tax rates overseas
how does NMW increase quality and/or quantity of factors of production
increases incentives for people to work, increasing quantity of labour
what can be used to evaluate NMW
setting it too high reduces ability of businesses to employ new staff, increasing unemployment
how does improving labour market flexibility increase quality and/or quantity of factors of production
makes it easier for people to move to find work through measures such as increasing supply of housing
what does improving labour market flexibility depend on
- risk of creating national brain drain to south east
- huge regional discrepancies in house prices mean investment is required in some areas and not others
how does immigration increase quality and/or quantity of factors of production
increasing quantity of labour in an economy through attracting skilled (and unskilled) workers from overseas
what can be used to evaluate immigration
- increase in supply of labour drives down wages in many industries
- no longer free movement within the EU
how does privatisation increase quality and/or quantity of factors of production
- the process of moving industries from state to private ownership
- increases efficiency of industries by introducing a profit motive
what can be used to evaluate privatisation
- can lead to monopoly situation
- loss of economies of scale as competition is introduced
- often requires state intervention in the form of regulation
how does deregulation increase quality and/or quantity of factors of production
the removal of legal barriers to entry to increase competition within markets
what can be used to evaluate deregulation
- can lead to monopolies is there is insufficient demand to support more than one provider
- depends on size of remaining barriers to entry
how does trade union reform increase quality and/or quantity of factors of production
reducing power of trade unions, reducing the number of hours lost to strikes (increases quantity of labour) and cost of excessive wage rises
how does infrastructure investment increase quality and/or quantity of factors of production
- increasing spending on “public capital” improving systems that drive the economy
- reduce business costs and enable them to increase output
what can be used to evaluate infrastructure investment
- time lag
- very expensive
how does research and development incentives increase quality and/or quantity of factors of production
incentivises firms to invest in new products and processes, increasing quality and quantity of capital
what can be used to evaluate research and development incentives
no guarantee this will lead to productive developments
