Government intervention in price mechanism and price ceilings, floors and market failure:
- Price mechanism is the determining of market equilibrium through supply & demand
- Market failure can involve: inadequate provision of goods and services (PTEs, price ceilings; community goods, merit goods, public goods), unequal distribution of income (progressive tax and welfare), negative environmental externalities (subsidies, penalties: quotas, carbon tax; MSC MPC), PTE monopoly power (privatisation, corporatisation, commercialisation, deregulation), and fluctuations in economic activity (fiscal and monetary policy, automatic stabilisers, price floors; business cycle)
Economic functions of the Australian government and fiscal policy:
- Economic functions include: reallocation of resources (budget; collective goods, taxation altering relative prices, encourage or discourage industries), redistribution of income (progressive tax and welfare), stabilisation of economic activity (fiscal and monetary policy, automatic stabilisers; business cycle), the provision of goods and services and the use of fair competition and environmental policies (ACCC and ASIC, negative externalities, penalties; financial advisers, carbon tax)
- Expansionary and contractionary fiscal policy is used to stabilise economic activity
RBA functions and monetary policy:
- RBA functions include: issuing of banknotes, banker to commercial banks (ESAs), banker and adviser to Commonwealth government, custodian of gold, foreign exchange and SDRs reserves, prudential supervision of payments system (through Payments System Board) and conducting monetary policy through open market operations to achieve 2-3% inflation, full employment, long term economic growth and to improve living standards
- Expansionary and contractionary monetary policy is used to stabilise economic activity
Factors affecting demand of goods and services:
- Prices of substitutes and complements, consumer preferences, income, population composition, size and age, income distribution, consumer expectations and technological progress
Factors affecting demand and supply of labour:
- Microeconomic labour demand factors: nature and size of industry, consumer demand, wage rate and employment conditions, productivity of labour, rate of capital/labour substitution and rate of structural change and entrepreneurial expectations
- Macroeconomic labour demand factors: total level of economic activity, productivity of labour, general wage rate, government industrial relations policies and the level of industrial disputation
- Microeconomic labour supply factors: wage rate and incentives, attractive/pleasant working conditions, education and training qualifications, labour’s geographic and occupational mobility and labour market institutions
- Macroeconomic labour supply factors: size of population, age distribution of population, participation rate, average number of hours worked
Factors affecting price elasticity of demand and supply and supply of goods and services:
- Factors affecting supply of goods and services: price of good, price of other goods, price of resources, technological progress, producer preferences, producer expectations, number of firms in the industry, seasonal influences
- Factors affecting price elasticity of demand: necessities and luxuries, existence of close substitutes, complementary goods (inelastic), percentage of income spent of good, length of time since price change
- Factors affecting price elasticity of supply: production time periods, ability to hold stocks, extent of excess capacity
Types and causes of unemployment:
- Types of unemployment: frictional, seasonal, structural, cyclical (also long term, hard core, regional, disguised and underemployment)
- Causes of unemployment: deficiency in aggregate demand, rigidities in the labour market (regulation), structural changes, role of wage expectations (wage levels)
Main methods used to determine wage outcomes: modern awards, enterprise agreements, common law contracts and reasons for differences in income:
- Non-wage outcomes: composition of work (part-time, full-time, casual, etc) and employment rate
- Wage-outcomes: rate of wage growth, distribution of wages and relative wage levels
- Main methods used to determine wage outcomes: modern awards (and also the Ten National Employment Standards, minimum wage, etc), enterprise agreements (single, multi, greenfields) and common law contracts
- Differences in income occur because of: gender, age, occupation, income group, cultural background
