Micro Economic Policy - Assignment Example

Microeconomics is a major branch of economics that precisely focuses on the individual sectors of the economy most particularly on producers and consumers (Australia 1998). Since the year 1980, the federal government of Australia has majorly been focusing on microeconomics. This is simply because it is the most effective sector for improving international competitiveness (Australia 1998). The Australian government reformed the policy by reducing or removing trade and competition restrictions on international and domestic markets (Australia 1998).  The policy focused on the reallocation of resources to reflect market forces which were followed by reduction and removal of tariff protection in addition to corporatization and privatization of government business enterprises (Australia 1998).  

The microeconomic reforms aimed at improving the efficiency and effectiveness of industries and therefore impose competition (Gittins & Forsyth 2008). When more and more industries become efficient per unit production the costs will eventually be lowered (Gittins & Forsyth 2008). This will automatically result in increased profit made by the business. The main objective is to ensure that producers transfer and supply their resources to the industries that are efficient. This will see the abandonment of those industries which are not using the resources efficiently.

The implementation of the microeconomic reforms basing on the 5 sector flow model has seen sharper competition develop between lower and foreign investments. More and great incentives are now available for local investors to improve their productivity by reducing costs and seeking new markets (Gittins & Forsyth 2008). There is a great openness to trade and many people are encouraged even to specialize in business. Moreover, prices of commodities have also lowered and things are much affordable to the domestic consumers. Competition in communication sectors has seen advancement since the reforms ended monopoly discrimination of single businesses (Gittins & Forsyth 2008).

The microeconomic reform policies have one major advantage. It is upon individual businesses to come up with the best strategies to sell and overcome competitors. This has seen service delivery and quality of products improve. One of the shortcomings is conflict among competing business companies (Budget.gov 1998). The free business environment needs to have regulations. This will ensure there is respect among competing companies as far as competition is concerned. Australian microeconomic policy has major success in the domestic competition. This is evident in the air travel business. Prices of airlines fell immediately after the airline policy was formulated in the year 1990 (Budget.gov 1998). With these lower air transport costs, the number of passengers also increased to 75%. Employment rates also increased to 19% in 1996 (Budget.gov 1998).

Average airfare (from 1990-1996 in Dollars)

Employment in the aviation sector

The other success of the implementation of the reform policy is on the countries GDP. The industry commission of Australia has estimated possibilities of the range of reforms in regard to national competition policy could boost the countries GDP to 5.5% (Budget.gov 1998).

Projected benefits of the implemented Microeconomic reforms policy