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Microeconomic Reform Essay

549 words - 3 pages

Microeconomic Reform
Analyse the role and importance of microeconomic reform to a competitive Australian economy. In your response you should refer to the economic information provided below.

Microeconomic policy endeavours to increase productivity, efficiency and international competitiveness. Since the 1980’s economic problems including inflation, unemployment, foreign debt and low per capita income have been dealt using mostly macroeconomic policy, however positive long term effects can not be maintained. Globalisation has reinforced the increased focus on microeconomic policy solutions to deals with these problems in international markets. Microeconomic policy is a very important way of improving Australia’s economic performance, and concentrates on influencing aggregate supply through structural changes within factor and product markets, ideally to improve levels of output and productivity. ...view middle of the document...

Higher productivity leads to improved returns to owners of capital and labour and enables greater consumption of goods and services. Prior to the recent depreciation of the Australian dollar was a strong Australian dollar peaking at $1.04 in October 2012 along with high commodity prices both of which have contributed to a productivity slowdown. In the May 2013 productivity Commision update, it was indicated that roughly one half of the growth in real aggregate output came from an increase in labour inputs, with the other half due to increased output per hour worked. Due to the mining sector’s growth, lower productivity statistics have been offset and labour productivity was 1.7% in 2010. Irrespective of this effect however, an overall return to positive productivity growth is essential for Australia’s long term economic growth prospects.

Microeconomic policy in the labour market can increase labour supply in prospect of increased labour participation and utilization to increase per capita value added and income, although productivity growth generates greater income growth especially in an aging society where labour force participation limitations are expected. Productive efficiency is dependent on the efficient allocation of resources. For instance, the reduction of artificial trade barriers (ie protection) and the consequent allowance of scarce resources to be allocated to other production valued more highly by consumers. Improvements in allocative efficiency are an important complement to improving Australia’s productive efficiency.

The National Competition Policy
Public Sector Reform (stimulus reference)
Financial Deregulation

-it compliments macro policies (demand side to achieve internal, external balance, EG in short (mod term) while micro policies simultaneously improve efficiency of resource allocation in the long run. Need to change structure of economy to make it more efficient
-three types of efficiency (tech; allocative; dynamic – define)

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