What are they
Directed at business with the intention of creating new business, the growth of business and improvements of business like productivity or innovation
Industrial policy measures
Encouraging to set up new firms
Encouraging small and medium size firms
By encouraging competition between firms
Labour Market measures
Increase quantity of workers
Increase quality of workers in labour market
Financial and capital measures
Deregulating financial market
Encourage saving
Promote entrepreneurship
Reduce public sector spending and borrowing
Supply side policies for PRODUCT MARKET
Designed to increase competition and efficiency
As the competition in a Market increases, so does the amount of businesses being created = increases supply of lower priced products being produced due to competing.
Competition may force firms to focus on their efficiency and productivity to produce more of a given product with limited materials.
How are SSP for product markets categorised
1 measures to encourage entrepeneurship
2 deregulation of markets
3 Toughen comp policy
4 commitment to free international trade
5 privatisation and nationalisation
6 capitol investment and innovations
What is privatisation
The transferral of assets from the public sector (government) to the private sector
Benefits of privatisation
- the organised nature of the private sector acts as an incentive for firms to start up and run efficiently and therefore achieve economic welfare
- reduces trade union power, widens share owenersbip and inc investment as they can sell shares on stock market.
- improves competition and production/dynamic efficiency
Nationalisation
Placing private firms into public (govt) ownership
Benefits of nationalisation
-positive externalities like transport
- welfare might be a priority as they are profit focused
Effects of supply side policies
- improve the supply of factors of production
- improve the efficiency of business : rise in business output or supply of goods and services - level of AS ^ and lead to a faster growing economy
- encourage competition
Disadvantage of supply side
Directed at long term issues in the economy and therefore take time to have an effect
How does SSP believe tax should be used
Tax cuts should be used - not to stimulate AD - but to create incentives by altering relative prices particularly those of labour and leisure
Supply side economic policy?
Set of government policies which aim to change the underlying structure of the economy and improve the economic performance of markets and industries
Interventionist SSP
Involve government intervention to tackle market failure
Examples of why govts use interventionist
- intervention to reduce poverty
- provision of key public goods, feeling as though the free market may not be sufficiently providing them
- building more social housing , price mechanisms failed to allocate an equal amount of supply to the levels of demand for housing
- policies to lift human capital , for example providing them with more training
- state ownership of key businesses NATIONALISATION
- state investment in public goods and key infrastructure
- commitment to minimum wage / living wage to improve work investives and productivity in labour market
- higher taxes on wealthy to fund public goods and merit goods
- active regional policy to inject extra demand into areas wi th typically low employment : low per capita income
- management of ER to imp competitiveness
Non interventionist (market based)
- to increase incentives: reducing income and corp tax to encourage spending g and investment = increase long run productivity. Potential
- promote competition: privatising or deregulating public sector = firms can operate in a competitive market which could also help improve economic efficiency
- reform labour market: reducing or abolishing nmw = allow free maket forces to allocate wages and the labour markets should clear. Reducing trade union power makes employing workers less restrictive + inc mobility of labour. Makes labour market more efficient
The laffer curve - high rate of income tax = disincentive to work
Cut in IT can result in higher incentive to work
Laffer curve purpose
Displays a graph showing how workers are more incentivised as a result of cutting IT (fiscal policy)
Describing the Laffer curve
- on the x axis is the average tax rate- 0% there is no tax revenue then it increases at a decreasing rate (curve gets lets steep) as disincentives creep in
- at a 100% tax rate there will be no tax revenue and no incentive to work at all
