3.2.5.2 Supply side policies

Supply side policies

Government policies designed to increase the productive potential of the economy by creating competitive and more efficient markets through interventionist policies

Three ways in which supply-side policies increase the productive potential of the economy

1. Increase the quantity of factor inputs

2. Increase the quality of factor inputs (Better healthcare and education)

3. Increase in the efficiency with which factor inputs are used

Supply-side economics

A branch of free market economic arguing that government policy should be used to improve market competitiveness, efficiency and economic performance

Interventionist policies

When the government intervenes in or replaces free markets. Supply-side interventionist policies include government funding of R&D

Non-interventionist supply-side policies

These are supposed to free up markets, promote competition efficiency and reduce the role of the state

Marketisation

Shifting provisions of goods/services to the market sector (commercialisation)

Deregulation

Removing previously imposed regulations

Privatisation

Shifting ownership of state-owned assets to the private sector

Supply-side improvements

Reforms undertaken by the private sector to reduce costs o firms can be more productively efficient and competitive

Examples of supply-side policies

1. Reducing state benefits and cutting the marginal income tax to increase the opportunity cost of not working

2. Reducing the power of trade unions

3. Employment, education and training

4. Geographical immobility