Microeconomic Reform

Microeconomic Reform

1. Definitions

   • capital widening ^labour force > ^capital equipment
   • capital deepening ^capital:labour ratio
   • disembodied change intangible e.g. management + education
   • embodied change tech e.g. NBN

2. MER: gov actions which \/ / remove barriers to efficient resource allocation to enable gov to achieve macro objectives

3. Structural Change - ongoing process of C + distribution patterns in economy, occurs naturally over time

   • e.g. tech change + growth of east asian markets like CHINA
   • MER ^rate + effectiveness of structural change. Aus is open trade economy - must meet tests of i/n markets, offering \/price, ^quality goods to dev export+import competing industries

4. Producivity - relationship b/w inputs needed to produce amt of output/time

   • labour (output/labour input)/time
   • capital (output/capital input)/time
   • multifactor (output/multifactor input)/time

5. Efficiency

   • technical - producing output w minimum average cost
   • allocative - firms charging prices to reflect marginal cost of prodn > resources allocated to reflect customer preferences
   • dynamic - ^adaptability to changing econ conditions using latest cost\/ tech to meet consumer preferences

6. Overseas Market

   • trade liberisation - \/tariffs + subsidies
   • FTA e.g. China, SKorea
   • freedom i'n m'ment capital e.g.FI
   • manufacturing idea > comparative adv

7. Imact on economy

   • PRICE STABILITY - \/avg costs of prodn+comp markets > \/prices
   • FULL EMPLOYMENT - ^growth rates>^labour demand+\/cyclical unemployment
     • HOWEVER reform>structural unemployment>re-training required to avoid long term unemployment
   • ECON GROWTH (inflation less) bc ^productive capacity
   • EQUITABLE Y DISTRIBUTION - welfare>work _ ^econ growth>^gov fin ability to provide support to low Y earners
   • EXTERNAL STABILITY - consistent \/inflation rate>^i'n comp + ^capacity > ^X volumes