Policies to Promote Growth & Development (AQA A Level Economics)

Removing the barriers to international trade such as tariffs, quotas etc.

More trade increases output, employment & incomes

Lowers costs of production for firms

May result in lower prices for consumers

More efficient global allocation of resources

Global competition intensifies and some firms may fail

There may be an element of structural unemployment as inefficient industries die out

Government firms are usually so big that private enterprise refrain from trying to compete with them

Privatisation encourages new firms to enter the market and compete, thus increasing the total supply in the economy

May increase competition leading to an increase in output, employment and incomes

Private firms may be more efficient than government firms

Competition may result in cheaper prices for consumers

The money from the sale of assets can be used to provide more merit and public goods

Government assets are often sold off cheaply at prices below fair market value

The quality of services may deteriorate as private firms focus on profit maximisation

Unemployment may increase as private firms seek to cut their wages in order to maximise profits

Prices may actually rise as firms provide a monopoly service e.g. rail travel

This is the process of removing government controls/laws from markets in order to increase competition

Any regulation increases costs of production for firms and deregulation decreases costs which may result in greater supply

Less regulation may result in innovation and more enterprise in an economy

Deregulation may create an environment of corruption leading to inefficiency

Deregulation may increase the quantity of negative externalities

Deregulation may allow foreign firms to monopolise industry within the nation, leading to higher prices and less output

A progressive tax system redistributes from those with higher income to those with lower income & reduces income inequality

Redistribution often starts with the provision of free education & healthcare paid for from tax revenue

Tax revenue provides the means of supporting poorer households and the unemployed

Sometimes, the benefits of a good progressive tax system are eradicated by the penalties imposed through multiple regressive (indirect) taxes

If the tax burden is too high it may become a disincentive to work

Transfer payments are usually given to the poorest & most vulnerable people in society and include unemployment & disability payments, pension payments, heating discounts, public transport subsidies etc.

The poorest households are supported

Money received from transfer payments generates consumption in the economy and increases aggregate demand

Poorer countries have less money available to support the poor

There is an opportunity cost for the government associated with each transfer payment

Supporting the poor makes good economic sense but is sometimes politically unpopular

Minimum wages are set above the free market rate and firms are not allowed to pay anyone less than the legal rate

Workers receive higher wages and have more disposable income

Consumption increases leading to increased aggregate demand

Standard of living increases with higher income

Costs of production for firms increase, possibly leading to less international competitiveness

With higher costs of production, output may fall leading to increased unemployment