Economics - Unit 4 AOS 2

Aggregate Supply

the total amount of goods and services in the economy available at all possible price levels

Aggregate Supply policy goals

Increase quantity & quality of resources / increase productivity / lower production costs / reduce market failure

allocative efficiency

A state of the economy in which production is in accordance with consumer preferences

Technical Efficiency

as few inputs as possible are used to produce a given output

Dynamic efficiency

Ability to innovate, adapt, and improve over time by investing in new technology

Intertemporal efficiency

the optimal balance between consuming resources and producing for future use

Infrastructure Investment

Involves federal government outlays in the budget to grow our capital resources

Infrastructure: Purpose

Spending on capital resources associated with areas that are needed to produce other goods and services

Social infrastructure

the basic facilities necessary for human development

Economic infrastructure

Provides additional capital resources needed by suppliers increasing production

Infrastructure: Weaknesses

Projects take time / Some projects score low in terms of benefit-cost analysis

Contemporary Infrastructure Projects

$2 billion Sunshine Station upgrade / $1.1 billion Western freeway upgrade

Skilled immigration features

sets annual targets to manage the number coming in / Priorities immigrants who have special types of skills / encourages those in younger age groups who can make valuable contribution

Skilled immigration pros

Fills aging population gap / strengthen productivity

Skilled immigration cons

Not permanent solution / political constraints

Trade Liberalisation

Reducing protection of local industry from import competition, encouraging specialisation in production and greater efficiency

Trade Liberalisation Policies

Cutting tariffs / reducing subsidies / abolish import quotas / FTAs

Trade Liberalisation: Short-Term

Imports become cheaper, so local businesses competing against imported goods will eventually close

Trade Liberalisation: Long-Term

Force local businesses to come up with more efficient way of production / Those who survive against the cheaper imports will be competitive enough to export overseas

Trade liberalisation impact on SSEG

Should strengthen primarily medium-long term / greater production specialisation in areas of comparative cost advantage

Trade liberalisation impact on LSI

Improve through specialisation / access to more markets / restructuring of firms

Trade liberalisation impact on FE

Short term bad due to business closure / bigger markets for our exports broad, allowing for increased sales and business expansion

Negative externality

the harm, cost, or inconvenience suffered by a third party because of actions by others

market-based environmental policy

Uses economic incentives to reduce the production of negative environmental externalities / expand the production of positive environmental externalities.

Emissions Trading System (ETS)

Works to change the type of goods / services produced by putting a price on CO2 emissions through creating a market for "tradable" pollution permits or offsets.

How does ETS work

supply of permits is capped and hence changes in demand determine the price at which the permits are traded

Example of ETS in practice

Tesla can trade their carbon emissions credit to 'dirty' manufacturers for a profit, incentivising other companies to produce clean goods and services

ETS impact short term

restrict AS growth because companies must reallocate resources toward non-carbon emitting activities

ETS impact Long term

Improves intertemporal efficiency, increasing the supply of environmental goods such as crops and trees

AS Policy Pros

solve structural problems in economy / beneficial impacts on AD / complementary with AD policies to improve living standards

AS policy Cons

Long 'implementation' and 'impact' time lags / can involve trade-offs that can reduce wellbeing / Often face political constraints in parliament and from voters