Supply side policy

Supply side policy

Using microeconomic measures to improve the supply side if the economy by making firms more efficient

Improving productivity

Improving investment (capital spending)

Implemented alongside growth in AD, supply side policy should increase the growth of real national output i.e. economic growth

Improving efficiency

Improving the productivity of firms will shift the LRAS rightwards, leading to economic growth

Examples of supply side policy

Privatisation- private sector firms - encourages incentivisation and increases market competition

Market deregulation- removing barriers/ rules- free to do what they want so they produce more output e.g. pollution permits

Improving competition policy- competitors want to attract customers so they differentiate their products e.g. price, quality, design, models

Free trade- international trade comes with barriers: encouraging free trade allows countries to specialise in producing the goods they are best at, lowering costs for consumers and expanding the market for businesses

Encouraging innovation- increases productivity, creating new industries and generating high quality jobs

In labour markets

Supply side policies will improve the quality and quantity of labour that is available to the economy

Supply side measures aim to make labour more flexible so that available workers can match the demand from business

Labour market supply side measures

Reduce the power of trade unions- e.g. secret strike ballots

Increase funding for education and training e.g. universities

Improve incentives to work e.g. reduce income tax