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economics yr 12 > topic 4 micro > Flashcards

topic 4 micro Flashcards

1
Q

what is microeconomic policy?

A

focuses on the individual parts of the economy and how to improve the efficiency in the distribution, exchange and production of G&S of value to increase productivity and shift AS curve right
- long term and structural
- decrease cost, increase cost and quantity

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2
Q

key micro reform focuses influences supply side to improve:

A
  • Productivity
  • International competitiveness (PQRS)
  • Efficiency (technical, allocative and dynamic)
  • Structural change
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3
Q

major components of AS (quantity)

A
  • labour force = increases through high population growth, immigration and participation rates
  • capital stock = increases through savings and investment rises (private and public)
  • natural resources = increases through new technology development
  • entrepreneurs = increases through capital market deregulation (encourages risk for high reward)
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4
Q

major components of AS (quanlity)

A

improving resources used in production (capital and tech) = increase productivity + trading and education to increase human capital

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5
Q

major components of AS

A

quality and quantity of FOP

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6
Q

efficiency is

A

lowest average cost = about cost
microeconomic policies are designed to maximise total production without more resources

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7
Q

technical efficiency def

A

producing output at minimum average cost (technical optimum)
- must talk about LRAC

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8
Q

allocative efficiency def

A

allocating reousrces efficiently in best meeting the needs of society –> achieved by minimising the opportunity cost of available resources and maximising utility

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9
Q

dynamic efficiency def

A

ability to adapt to changing economic situations over time.

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10
Q

productivity def

A

output per unit of labour or capital employed over time

labour productivity = total output/labour input (per period)

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11
Q

multifactor productivity def

A

a measure of productivity that attempts to account for all input into the production process, not just labour

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12
Q

australia’s productivity will increase due to

A
  • increase capital deepening NOT widening
  • increase human capital through education and training
  • increase labour/capital efficiency due to technological advancements
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13
Q

microeconomic government policies characteristics

A
  • directed at AS through product and factor markets
  • improves resource allocation
  • impacts tradeable and non-tradeable sector
  • targets both gov and private owned enterprises
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14
Q

MER 1980s onwards

A
  • national competition policy = deregulation (planes, banking, financial market)
  • decrease levels of industrial assistance
  • privatisation, deregulation, commercialisation and corporationisation of PTEs
  • labour market reforms
  • financial market deregulation
  • tax reforms
  • productivity commission
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15
Q

positives of micro reform

A
  • decrease inflation
  • decrease U/E
  • increase national savings (compulsory super, financial sector reform)
  • decrease CAD
  • increase productivity
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16
Q

commercialisation def

A

pte’s stay in gov’s hands but attempt to function efficiently for-profit with separation from government

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17
Q

corporatisation def

A

pte’s stay in gov hands but use private sector internal anlaysis to improve efficiency

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18
Q

privatisation def

A

selling off state-owned monopolies or public trading enterprises

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19
Q

main microeconomic reform categories

A
  • deregulation (financial sector, agricultural industries, transportation industries, telecommunications industry, continuing regulation)
  • reforms to public trading enterprises (corporation of ptes, privatisation of ptes, nations competition policy)
  • future microeconomic policy
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20
Q

why was financial regulation needed

A

following the financial sector collapse during GFC
- financial crisis blamed on gov high regulation
- allowed banks to take too many risks with investor money
- highlights need for balance between efficiency and consumer protection

21
Q

financial deregulation through

A
  • floating AUD in 1983
  • removal of reserve bank’s direct monetary controls over banks in 1973 (align with market forces)
  • removing barriers for foreign banks to enter the market
22
Q

financial sector purpose

A

Financial sector ensures businesses can access funds for investment and growth through investors who can easily and confidently invest their savings.

23
Q

microeconomic policies

A
  • financial system inquiry = policy review conducted in 2014
  • royal commission into misconduct in the Banking, Superannuation and Financial Services Industry concluded in 2019
24
Q

financial system inquiry

A
  • increased min capital requirements for banks to avoid future crisis (useful in COVID)
  • banned excessive credit card surcharges since 2016
  • recommendations to give ASIC more explicit powers –> not implemented
25
royal commission into misconduct in the Banking, Superannuation and Financial Services Industry
- uncovered dishonest practises - found widespread governance problems - recommended banning certain commissions charged by mortgage brokers --> not implemented yet
26
agricultural industries in the past
single government-owned businesses or industry cooperatives had a monopoly on buying farmers’ produce
27
deregulation of agricultural industries
has increased competition in farm produce markets and diversified outputs - agriculture is one of the least regulated industries - annual agricultural productivity decreased from 20% in mid 20th century to current 0.5%
28
transportation industry deregulation
- 1990 = domestic aviation industry deregulation - 1997 - commonwealth and state governments establishing Australian Rail Track Corporation (ARTC)
29
aviation industry deregulation
- ended 2 airplane (qantas and virgin) policy since 1952 - several international airlines entered AUS - 2020 COVID-19 lockdowns pushed the Virgin group into insolvency.
30
Australian Rail Track Corporation (ARTC) establishment
- manages 10,000 national interstate rail network - ARTC sells access to privately owned freight businesses such as Pacific National and oversees maintenance of the network and new capital works
31
telecommunications industry deregulation
- in 1990s market opened to many new new telecommunications businesses from Telstra monopoly - decreased telecommunications costs by increasing competition - With NBN roll out in 2010s, Telstra was separated from the infrastructure of businesses that offer telecommunications = increase competition
32
continuing regulation
australia has repealed many regulations however: - environmental reforms - construction, energy and transport = safety - electrical, gas, water, postal and telecommunications = decrease prices - emerging areas (e.g gig economy) = facilitate infrastructure
33
main microeconomic reforms to promote efficiency in PTEs
- corporatisation = Encourages PTEs to operate independently from the government as if they are private business enterprises. - privatisation = Sells of PTFEs so that they do become private enterprises (in whole or in part).
34
corporatisation of ptes
- eliminates political and bureaucratic supervision - Makes public enterprise managers accountable for enterprise performance - operate in competitive markets but must comply with competitive neutrality laws (ensure PTEs don’t receive artificial competitive advantages) - E.g Australia Post, Energy Australia and the Sydney Water Corporation
35
privatisation of ptes
- Raises one-off revenues - Increases competition - Encourages more rational management and pricing behaviour - Forces businesses to become more efficient - e.g Medibank Private = 38 years in government ownership was sold for $5.6B in 2014 - e.g assets including electricity “poles and wires” business = sold for $20B = funded light rail project, second harbour rail crossing and the extension of the North West Rail Link
36
gov rare regulation
government established a new PTE to operate an optical fibre telecommunications system - National Broadband Network (NBN) in 2009 = cost $51B to build = one of the largest in the country
37
broad national competition policy
- created in response to 1992 Hilmer report (review of eco competition) - Competition policy implemented in 1995 aims to promote competition in markets - increases efficiency and decreases prices.
38
in NCP gov agreed to
- increase competition in industries with monopolies (e.g electricity, gas, water, rail and road transport) - remove special provisions that advantage PTEs over private sector competitors - established the national competition watchdog, Australian Competition and Consumer Commission (ACCC) --> in 2020 recorded $240M penalties - regulate cost of access to infrastructure
39
professor ian harper report in 2015
recommended that competition principles should be incorporated into a wider range of government regulations (e.g services such as health and aged care) - Productivity Commission (PC) said public spending was $200B per year on human services - review said reform would increase EG as much as the first round of competition policy reforms in the 1990s - not implemented
40
changes made to Australia’s competition policy regime in 2017
expanded law of misusing market power - businesses should not decrease prices or refuse to supply G&S - “Concerted practices” were also banned; they include actions such as sending price information to competitors - Previously regulators must prove that a business actually intended to harm competitors while now regulators only have to establish that the business practice in question had the effect of harming competition
41
commonwealth and state government consolidation
- e.g limited progress with a set of “seamless national economy” reforms under Rudd and Gillard (2007-13) = estimated to boost GDP by 2% in 2014 - e.g turnbull's unsuccessful implementation of its planned National Energy Guarantee reforms in 2018
41
long term trend of microeconomic policy
The mid 1980s to early 2000s saw extensive microeconomic reforms while fewer reforms have been achieved in the past decades (mainly macroeconomic).
42
COVID recovery phase --> revisit micro
- included replacing long-standing Council of Australian Governments (COAG) with a National Federation Reform Council (NFRC) based on “national cabinet” success btw federal and state in COVID - few signs of acceleration in difficult areas of reform
42
important microeconomic reforms on the agenda
- better consolidation between Commonwealth and state governments in areas where Australian Constitution gives states the power - 2020 COVID recovery phase to revisit microeconomic policies regarding taxation, industrial relations and business regulation - The Productivity Commission outlined Australia’s future microeconomic reform priorities in the 2017 “Shifting the Dial” report (increase AUS GDP by $80B a year)
42
Productivity Commission “Shifting the Dial” report in 2017
- health (more flexible, reduced support for inefficient services, alcohol tax reform, etc.) - education (extend consumer laws to universities, independent assessment of skills at university, etc.) - city (changing public transport infrastructure, competition principles for land use, road use charges, etc) - market (encourage innovation, tax reforms, etc.)
42
overall benefits
- greater efficiency and productivity growth - new businesses and job opportunities - higher EG and SOL - low inflation
43
overall costs
- higher U/E in short term - closure of inefficient businesses - greater work intensity - less equal distribution of income
44
productivity growth
- Between 1990-2001 = 2.2% growth per year - post-2001, productivity growth slowed to below 1% per annum
45
ACCC action

economics yr 12 (12 decks)

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