1. Welcome!
Welcome to this website about Long-run Supply Side Policies. Through this online platform, we, the economists of this country will be explaining the significance of these policies to the government, showing how they help in economic growth and analysing the various ways in which they can be implemented by the government.
5. Effects of Long-run Supply Side Policies seen through Graphs
Effects of Long-run Supply Side Policies seen through Graphs
1. Shifting outwards of the PPC Curve
The PPC curve will shift outwards as productive capacity increases.
2. Shifting rightwards of the AS curve in the AD-AS model
The long-run aggregate supply will shift from LRAS1 to LRAS2 and this will increase the full-employment output level. Coupled with an increase in aggregate demand, the real national output will increase from Y1 to Y2.
3. Supply Side Policies for Increasing Quantity of Resources
-Designed to increase quantity of resources (i.e. labour, land, capital) so that more goods and services can be produced at each price level. This will increase the aggregate supply of the economy.
1. Size of the labour force
Labour force refers to human resources needed in production. Growth in size of labour force is partly determined by amount of new workers every year. This comes from natural births within the resident population or foreign migrant labour. The government also encourages older people to stay in the workforce through increasing the retirement age and get non-working parents to actively look for work.
2. Land and natural resources
This refers to the geographical space as well as non-human natural resources needed in production. Discovery and recovery of new natural resources like oil reserves or mineral deposits can thus increase the amount of input into the economy, so output will increase too. Land reclamation from the sea or desert means more usable land for agriculture, industrial or commercial activities so more factories, farms and buildings can be build which increase productive capacity of an economy.
3. Investment in private capital stock
Capital is a key man-made (non-natural) resource that is needed in production. Changes in the stock of capital will alter the amount of goods and services that can be produced in the economy. Private capital investment increases the quantity of capital stock for consumers like factories, plants, equipment and machines for these factories.
4. Investment in infrastructure (social capital)
Government investment in infrastructure consists of investing in transport networks like roads and rails to increase the efficiency of transport of raw materials to manufacturing plants and telecommuniciations networks. This will increase productive capacity of the economy as a whole.
5. Measures to encourage small business start-ups / entrepreneurship
Promote an entrepreneurial culture so as to increase the rate of new business start-ups. Small business today can develop to become large companies in the future, adding new players into the market so with more producers in the economy, the aggregate supply of all goods and services will increase.
Examples of policies include: loan guarantees for new businesses; regional policy assistance for entrepreneurs in depressed areas of the country; advice for new firms
Summary video
1. Size of the labour force
Labour force refers to human resources needed in production. Growth in size of labour force is partly determined by amount of new workers every year. This comes from natural births within the resident population or foreign migrant labour. The government also encourages older people to stay in the workforce through increasing the retirement age and get non-working parents to actively look for work.
2. Land and natural resources
This refers to the geographical space as well as non-human natural resources needed in production. Discovery and recovery of new natural resources like oil reserves or mineral deposits can thus increase the amount of input into the economy, so output will increase too. Land reclamation from the sea or desert means more usable land for agriculture, industrial or commercial activities so more factories, farms and buildings can be build which increase productive capacity of an economy.
3. Investment in private capital stock
Capital is a key man-made (non-natural) resource that is needed in production. Changes in the stock of capital will alter the amount of goods and services that can be produced in the economy. Private capital investment increases the quantity of capital stock for consumers like factories, plants, equipment and machines for these factories.
4. Investment in infrastructure (social capital)
Government investment in infrastructure consists of investing in transport networks like roads and rails to increase the efficiency of transport of raw materials to manufacturing plants and telecommuniciations networks. This will increase productive capacity of the economy as a whole.
5. Measures to encourage small business start-ups / entrepreneurship
Promote an entrepreneurial culture so as to increase the rate of new business start-ups. Small business today can develop to become large companies in the future, adding new players into the market so with more producers in the economy, the aggregate supply of all goods and services will increase.
Examples of policies include: loan guarantees for new businesses; regional policy assistance for entrepreneurs in depressed areas of the country; advice for new firms
Summary video
4. Supply Side Policies for Increasing Productivity of Resources
-Designed to increase the output per unit labour so the amount of goods and services produced at each general price level increases. This will increase the aggregate supply of the economy.
1. Privatisation
Summary video
1. Privatisation
Privatization is designed to break up state monopolies and create more competition. In order to maximise profits, companies are encouraged to increase the output per unit labour, which essentially decreases the cost of production per unit output. Competition among companies will encourage them to produce the best goods and services for consumers.
2. Deregulation of Markets
De-regulation or liberalisation means the opening up of markets to greater competition. The aim of this is to increase market supply and widen the range of choice available to consumers. Competition among producers should also lead to greater cost efficiency from them – as they are keen to hold onto their existing market share.
3. Toughening up of Competition Policy
Most supply-side economists believe in the dynamic effects of greater competition and that competition forces business to become more efficient in the way in which they use scarce resources. This reduces costs which can be passed down to consumers in the form of lower prices. A tougher competition policy regime includes policies designed to curb anti-competitive practices such as price-fixing cartels and other abuses of a dominant market position.
4. A commitment to free international trade
Trade between nations creates competition among nations and should be a catalyst for improvements in costs and lower prices in goods and services for consumers as firms will now aim to have their goods produced and sold at a lower cost in order to be able to entice consumers to buy from them and not other countries' firms.
5. Investment in human capital
Government spending on education and training improves workers’ human capital. Economies that have invested heavily in education are those that are well set for the future. Most economists agree, with the move away from industries that required manual skills to those that need mental skills, that investment in education, and the retraining of previously manual workers, is absolutely vital.
It should also be noted that improved training, especially for those who lose their job in an old industry should improve the occupational mobility of workers in the economy. This should help reduce the problem of structural unemployment.
6. Investment in technology
By investing in research and development, newer methods and technology can be innovated. With the state-of-the-art technology, producers can produce goods more efficiently and their productivity increases because the output quantity per unit of labour increases.
6. Investment in technology
By investing in research and development, newer methods and technology can be innovated. With the state-of-the-art technology, producers can produce goods more efficiently and their productivity increases because the output quantity per unit of labour increases.
Summary video
2. Introduction to Topic
Definition of Supply Side Policies
Micro-economic policies designed to improve the supply-side potential of an economy, make markets and industries operate more efficiently and thereby contribute to a faster rate of growth of real national output
Significance of Supply Side policies
Key to achieving sustained economic growth without a rise in inflation
Ensures that there is increase in real national output i.e. increase in national output is not due to increase in general price level
Effect of Supply Side Policies
Increases quantity and productivity of available resources which increase productive capacity of economy
This will result in, graphically,
-Shifting outwards of the range of the Production Possibility Curve
-Shifting rightwards of the classical range of the AS Curve
Micro-economic policies designed to improve the supply-side potential of an economy, make markets and industries operate more efficiently and thereby contribute to a faster rate of growth of real national output
Significance of Supply Side policies
Key to achieving sustained economic growth without a rise in inflation
Ensures that there is increase in real national output i.e. increase in national output is not due to increase in general price level
Effect of Supply Side Policies
Increases quantity and productivity of available resources which increase productive capacity of economy
This will result in, graphically,
-Shifting outwards of the range of the Production Possibility Curve
-Shifting rightwards of the classical range of the AS Curve
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