Australia - a mixed economy

• No economy is at the extreme ends of the spectrum

• All economies have elements of both:– Pure market– Planned

• Economies incorporate a mix of market forces and government intervention

• The amount of each will vary between every economy

Where are we now?

• Since the 1980s economies have been reducing the degree of government intervention

• The global financial crisis has prompted governments to increase the level of intervention

Why Governments intervene in production

• Efficient allocation of resources - eg public goods that would not otherwise be produced

• Regulation - eg prevent undesirable products and avoid exploitation

Why Governments intervene in distribution

• Protect those who are unable to produce - eg unemployed, elderly, disabled

• Reduce the inequality resulting from an uneven distribution of income and wealth

We also know that Governments intervene to…

• Reduce the volatility of the economic cycle

The economic problem in a mixed economy

• What to produce?

• How much to produce?

• How to produce?

• How to distribute production?

Government can control what to produce by…

• Producing itself eg schools, defence

• Offer incentives to producers eg tariffs, tax incentives, funding

• Restrict production

Government can control how much to produce by…

• Limit production eg licensing,

• Protectionist policies

• Provision of merit goods

Government can control how to produce by…

• Controlling the cost of the factors of production eg wages,

• Laws regarding how firms behave eg OH&S mean that the cost of production may not be as cheap as possible

Government can control how to distribute…

• Income tax redistributes from higher income earners to lower income earners

• Minimum wages protect workers from exploitation

How will you address the economic problem in your

economy

• What to produce?

• How much to produce?

• How to produce?

• How to distribute production?

Comparing Economies

• The goal of any economy is to maintain or enhance the quality of life of all individuals

• To compare economies, it is important to consider the size of the population to establish the conditions for individuals within the economy

Australia’s Output (GDP)

• Although Australia’s GDP may be relatively small when compared to other economies, we need to remember our population is comparatively small

• Therefore, to compare economies we consider GDP per capita

Rate of change

• Whilst it is important for Australia to experience economic growth, it is also important that the rate of economic growth keeps pace or surpasses the rate of growth of other industrialised nations

Employment and unemployment (Aust)

• Below the ave for industrialised nations p.36

• May afflict specific groups eg youth, rural• High employment assists economic

growth• Unemployment indicates resources are

not fully utilised and wastage is occurring (think about the PPF)

Quality of Life

• There are factors other than economic growth that affect quality of life – Educational opportunities– Health care– climate

• Human Development Index (HDI) measures economic development taking into consideration – Life expectancy– Educational levels & adult literacy– GDP per capita

Quality of Life (cont)

• Australia’s HDI in 2004 had us ranked 3rd in the world

• Another consideration is the cost of living - Australians spend a similar amount of time working to purchase similar items

• Australian cities are relatively inexpensive (when compared to Europe, Asia, North America)

• Australians tend to have longer working hours than Europeans

Environment

• If Australia relies heavily on natural resources - what will happen when they run out?

• Government must act to sustain resources

• Economic problem ignores environmental factors when short term goals exceed long term sustainability

Healthcare

• Government provides majority of health care

• Other industrialised economies rely more on private health spending

Education

• Free primary and secondary schooling (similar to other advanced economies)

• Overall expenditure is around average levels at 5.8% of GDP

Welfare

• Includes unemployment benefits, pensions, sickness and disability allowances

• Typically means tested (ie dependant on other sources of income)

• Work for the dole schemes have been introduced

• Introduction of education and training schemes to encourage productive return to work