Objectives of Government Microeconomic Policy

In this subtopic the rationale for government involvement in setting microeconomic policy is examined. The interaction between microeconomic performance and Australia's economic performance in global terms is reviewed and the concepts of economic efficiency are revisited.

Since the early 1980's, Government microeconomic policy has been directed towards establishing an environment or a framework within the economy, which is likely to result in competitive outcomes. Why is competition so desirable? What are the benefits of competition that Governments in recent years have been so intent on delivering? Being competitive means being able to produce goods and services that customers want, at a price and quality at least as good as producers in other countries. By being competitive and improving productivity, (the ability to produce more output with the same or less amounts of input) a country such as Australia can achieve economic growth and improve the living standards of it population.

Economic efficiency is an important concept in assessing the level of competition in the economy. There are three measures of efficiency, productive or tech

Until the late 1980's Australian manufacturing industries were highly protected. These industries were cushioned from competition with other countries via high tariff barriers and subsidies on inputs. As a result, productivity in these industries was very low, design innovation was stifled and product quality inferior compared to other countries. Manufacturing industries are an important focus for microeconomic policies because they are either potential exports or import substitutes. Since the mid 1980's Australia has had a persistent and growing deficit on the current account. One solution to this problem is to improve the balance of trade, that is, increase exports and decrease imports. To encourage an increase in exports from manufacturing industries, domestic industries need to increase productivity and competitiveness.

nical, allocative and dynamic efficiency. Productive or technical efficiency is the ability of firms to use the minimum inputs to achieve a particular level of output. This obviously requires choosing the appropriate level of technology and machinery, good management practices and work procedures and elimination of wastage. Allocative efficiency is achieved when firms produce the mix of goods or services most desired by consumers. That is resources are allocated to industries and firms in accordance with how much consumers want the output they produce. Firms can achieve allocative efficiency by producing up to the point that price is equal to the cost of producing the last unit of the good. Dynamic efficiency is having organisational structures that can ensure that efficiency is achieved over time. That is technological improvements are adopted, and innovations made that ensure that firms and industries can rapidly adapt to changing market conditions.

The model of perfect competition has long been used as the benchmark or yardstick by which the efficiency of other market structures has been measured. The stringent assumptions of the model, such as the existence of many small firms producing an identical product and with free entry and exit mean that it is generally not found in reality. Both productive and allocative

efficiency are achieved in this form of market structure as the existence of many competitors ensures that production takes place at least cost and prices are driven down to the level where they equal marginal costs.

Corporatisation involves the setting of clear objectives for the enterprise, performance related pay for managers and the monitoring of the enterprises financial and productive performance. This involves separating the day to day running of the entity from the ownership function. This separation minimises government interference in operational issues and forces governments to explicitly fund community service obligations out of State and Commonwealth budgets.

In addition, governments have focussed attention on the skills needs of the Australian workforce. In order to meet the needs of industry, on-the-job and more formal education and training programs have been encouraged.

Government business enterprises (GBE's) such as electricity supply, water supply, postal services and gas supply, are an important part of the Australian economy. These industries have been chara

Some common words found in the essay are:
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Approximate Word count = 2189
Approximate Pages = 9 (250 words per page double spaced)