Microeconomic Reform

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.

Improvements in Australia’s productivity performance will result in increasing real incomes and thereby improved standards of living and addressing future challenges such as the Australia’s aging population and vulnerability to global economic shocks. The rationale for microeconomic reform is illustrated by a shift in the aggregate supply curve to the right. The effects of this movement are a decrease in the price level of domestic g+s from P1 to P2 and an increase in total output as illustrated on the diagram from Y1 to Y2.

Productivity growth is an indicator of greater efficiency and occurs when businesses are able to harness capital and human resources to increase their scale of production or minimize their production costs. 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...