Edexcel A Level Economics A:復習筆記2.6.3 Supply-side Policies

Category: A-level課程, 教材筆記, 福利干貨 Date: 2022年9月27日下午3:18

Supply-side Policies

Supply-side policies?aim to shift?the?long-run aggregate supply (LRAS)
There are two categories of supply-side policies
- Interventionist?and?market-based
Interventionist supply-side policies require?government intervention?in order to increase the?full employment level of output
- These are mainly used to correct?market failure
Market-based supply-side policies?aim to remove obstructions in the?free market?that are holding back improvements to the long-run potential
- E.g. Setting up a regulator to?prevent monopolies?forming

Aims of Supply-side Policies

Broadly speaking, there are?five aims of supply-side policies
- The overall aim is to increase the quantity/quality of the?factors of production

Market Based & Interventionist Strategies to Meet the Aims of Supply-side Policies

Aim of Supply-side Policy	Market Based Approach	Interventionist Approach
To increase incentives	Reducing?income/corporation tax?rates Restructuring the?unemployment benefits?system to incentivise the unemployed to seek work
To promote competition	Privatisation & deregulation Trade liberalisation	Increased?government spending?on innovation Direct support to firms (subsidies) promotes?international competitiveness
To reform the labour market	Decreasing?trade union power?so wages can be decreased Decreasing?minimum wages?to lower costs of production	Increased?government spending?on improving?occupational mobility
To improve the skills and quality of the labour force		Increasing government spending on?education?and retraining Increasing government spending on?healthcare?so that productivity improves
To improve infrastructure		Increased government spending on?infrastructure

Exam Tip

MCQ will test your ability to differentiate between market-based and interventionist supply-side policies.

When evaluating supply-side polices in essay responses, demonstrate critical thinking by acknowledging that privatisation has been used for so long that there is little left to privatise and perhaps a better way forward is to improve competition policy & regulation.

Remember, the private sector will also be increasing supply in an economy (it is not only up to the government) as they are incentivised to increase their profits.

Diagrams to Illustrate Supply-side Policies

Successful supply-side policies will increase the?long-run aggregate supply (LRAS)
- This equates to an increase in the production possibilities of an economy
The successful implementation can be illustrated on either a?Classical or Keynesian?diagram

2-4-3---changes-to--lras---classical

A Classical diagram that illustrates the implementation of successful supply-side policy

2-6-3-supply-side

A Keynesian diagram that illustrates the implementation of successful supply-side policy

Diagram Analysis

E.g. Efforts to reduce?trade union power?have been successful
- There is now less protection on wage levels
  - Wage levels fall
Firms will now?hire more workers?& the?quantity of productive labour?in the economy has increased
- This causes LRAS1?to increase to LRAS2
  - Output increases?from YFE?to YFE1
  - Average?price levels?fall from AP1→AP2

Strengths & Weaknesses of Supply-side Policies

Strengths of Supply-side Policies

They increase the?rate of growth?of an economy
They reduce?average price levels
They reduce?unemployment
They often increase the value of?net exports
Improvements in Infrastructure can raise the quality of life for all citizens

Weaknesses of Supply-side Policy

The?distribution of income?worsens as labour market reforms and wage policies lower worker's wages
They are?expensive?to implement
There are significant?time lags?between expenditure & seeing the benefits
Due to the long-term nature,?changes in government?often result in changes to budgets & scope of projects
- The end result may be?less effective?than it could have been
Vested interests?can result in less effective outcomes e.g. There are many examples of privatisation occurring in such a way that the government's preferred bidders obtained an?asset at a knock down price
- Often the preferred bidders were not necessarily the most?efficient?firms

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