Effects of microeconomic policies

• Benefits
  • greater efficiency and productivity growth in long-term
    • due to increased AS
    • → + comparative advantage of exports
      • (increases GDP and eco growth overall)
  • New business and job opportunities
  • Higher (long-term) eco growth leads to lower prices (inflation) & higher living standards
    • As increased AS reduces Cost-push inflation
  • Helps overcome structural economic problems
• Costs:
  • Higher short-term unemployment
    • → increased gov cost to retrain redundant workers
  • Closure of inefficient businesses (& industries)
  • Greater work density
  • Less equal distribution of income

Product and factor markets

?

• A product reform occurs in a specific industry

• A factor reform involves the form of a factor of production

  • e.g. reforms made to labour market are factor reforms (because labour is utilised in every industry)

• Capital deepening refers to :: the use of more machines per worker

  • improves productivity (1% growth from 2001-2018)