Chapter 10 Flashcards
Supply side policies
are government policies that are aimed at increasing the productive capacity
of an economy. This means that the economy can supply more goods and services in the long run.
Supple side policies can achieve what three things
improves the efficiency of the economy, ie fewer resources are needed to produce the same output
improves the competitiveness of the economy, creating a demand for our exports
increases the productivity of the economy, allowing more output at the same cost
What was an advantage of reducing union power to producers
Therefore, the government wanted to weaken Trade Union power and create a more ‘flexible labour
market’, meaning that union members could effectively be by-passed, and new employees could be taken
on to do their job. This meant that businesses could increase production, lower their costs and increase
suppl
Reducing income tax boosts the economy how
governments believed that reducing income tax would lead to a surge of
competition in the labour market. If a worker keeps more of their disposable income, then they are
incentivised to work more, and this leads to more production, increased productivity (due to the increased
competitiveness of the labour market) and lower average costs for firms. It also encourages the wealthiest
(the ‘wealth creators’), who gained most from the tax cuts to use their increased incomes to invest in more
entrepreneurial activities, such as setting up new businesses, that creates competition, creates jobs and
boosts supply in the economy
Reducing Benefits
decreases unemployment how
to encourage even more competition in the labour market, governments started
to reduce benefits, especially for those that were unemployed. This created an incentive to become
employed rather than to stay at home or work less hours, in order to claim benefits.
Privatization why would it occur
The rationale is that a private firm would
be more efficient because in order to make more profit, they would have to lower costs and prices to
compete.
Regulation and deregulation purposes
At the beginning there was little competition and so the firms were
regulated (so they could not make excessive profit due to them being a private monopoly) but over time,
the markets were deregulated in order to introduce competition. This created an even bigger incentive
for firms to be efficient in order not to lose out to competitors. As more and more firms enter the market,
innovation is also likely to occur and overall, there should be a big increase in potential supply and this
should lead to falling prices for consumers in these markets. Many of these markets are now oligopolies
and are still regulated by government
Reducing corporation tax advantages
– to encourage more firms to set up, the government reduced the tax on
profits for companies. This meant that foreign firms would be attracted to the country to set up (inward
foreign direct investment), which creates competition within the domestic market and that drives efficiency
gains. Corporation tax was often reduced for small firms as well in order to encourage entrepreneurialism.
Once again, this leads to more competition. It also means that firms were also likely to have higher profits
that can be invested into research and development. This normally leads to increased productivity and
therefore increases potential supply even further
Education and training increases competitiveness how
in order for businesses to be productive, a good quality labour force is needed
and therefore education and training is crucial in order to increase supply. It also leads to a more
productive labour market that can drive down wages which can also help businesses produce more,
resulting in increased competitiveness.
Investment in infrastructure why would you
improving or building more roads, railways and airports, is an example
of the government trying to boost the infrastructure in a country in order to make it easier for businesses
to operate.
Healthcare advantages
his is seen as a supply-side policy because if you have a healthier workforce, then they
should be more productive and have fewer absences from work.
How do supply-side policies impact Ensuring price stability
he process of improving economic efficiency should ensure that costs of production decrease or rise at a
sustainable level.
How do supply-side policies impact Achieving economic growth
An improvement in efficiency should lead to an increase in output, generating improved profits, higher wages
and economic growth.
How do supply-side policies impact Maintaining full employment
Supply-side policies aimed at improving skills should ensure that individuals become more employable.
Increased efficiencies and profits for businesses should encourage greater employment.
How do supply-side policies impact having a balanced current account on the balance of payments
If the UK’s economic efficiency improves then UK products and services should become more price
competitive, generating an increased demand for UK exports.
