In this topic you will learn to:
Examine economic issues
Apply economic skills
- analyse the opportunity cost of government decisions in addressing specific economic problems or issues
- investigate structural changes in the Australian economy resulting from microeconomic policies
Apply economic skills
- explain how governments are restricted in their ability to simultaneously achieve economic objectives
You will learn about:
Microeconomic policies
- rationale for microeconomic policies including shifts in aggregate supply, efficiency
- effects of microeconomic policies on individual product and factor markets, individual industries and the economy
- regulation and deregulation – competition policy
Microeconomic reform aims to boost productivity growth by creating an environment in which resources are allocated to their most productive uses and firms use the most efficient methods of production.
Reference: https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/rp/RP9697/97rp19#MICRO
What types of questions can you expect?
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Microeconomic policies
These questions typically require you to know these three important aspects of microeconomic policy:
These questions typically require you to know these three important aspects of microeconomic policy:
- how microeconomic policies shifts aggregate supply and improves productivity
- its direct and indirect effects on individual product and factor markets, individual industries and the economy
- the significance of regulation and deregulation – competition policy
What is it?
Microeconomic reform is the generic term for 'government policies designed to deregulate or re-regulate product, service and factor markets in such a way as to promote competition and efficiency in relation to both domestic and international markets' (Robertson, Quayle and McEachern, 1994: 384).
Economic policies that tend to be encompassed by the microeconomic reform heading include:"Microeconomic Reform and Productivity Growth" https://www.aph.gov.au/
- deregulation of the labour market,
- reducing tariffs and other forms of protection for domestic industry against foreign competition,
- deregulation of the financial markets,
- privatisation and corporatisation of public enterprises, and
- reducing distortionary taxes.
How does it work?
When the going gets tough, such as our experience with the Coronacession, macro policy is the go-to government policy. Quite rightly as macroeconomic policies aim to boost aggregate demand and get the economy back on track for economic prosperity. Microeconomic reforms have a place though, they're just not the instantaneous motivator for economic growth that big spending budgets or easing monetary policies are. Supply-side or microeconomic policies are fundamental and are an important enabler of the economy.
Microeconomic reforms build agile economies that can withstand shocks, and in the case of the COVID pandemic, Chair Michael Brennan from the Australian Business Economists points out three main reasons we should focus on microeconomic policy:
Microeconomic reforms build agile economies that can withstand shocks, and in the case of the COVID pandemic, Chair Michael Brennan from the Australian Business Economists points out three main reasons we should focus on microeconomic policy:
- First, because the COVID pandemic is, among other things, a reallocation shock
- Second, we face a particular challenge around new business formation and risk appetite, and
- Third, because a strong microeconomic lens can help us build resilience and protect against bad policy.
Where is it happening?
Economics is all about the now. Check out these articles to find out where microeconomic policy is happening, how it is affecting individuals and markets, and who are the winners and the losers.
Choose ONE article and in the same column, answer these three basic questions:
Choose ONE article and in the same column, answer these three basic questions:
- How is the microeconomic reform discussed in the article related to aggregate supply?
- How has the microeconomic reform led to changing efficiencies (positive or negative or a combination)?
- How has this microeconomic policy affected a common metric used in economics, for example: inflation, unemployment, external stability, stability of the currency.
Think about it
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