| Front | Back | | --- | --- | | A government abolishes the national minimum wage. Predict the immediate effect on (a) the wage rate in low-skilled markets, and (b) the level of market-determined employment. |

(a) Wage rate falls to market equilibrium ($W_e$).
(b) Employment rises as lower wages encourage firms to hire more.

| | A government reduces unemployment benefits and tightens eligibility. Predict the effect on (a) job search duration, and (b) the size of the active labor supply. |

(a) Job search duration decreases (faster return to work).
(b) Active labor supply increases as eligibility requirements tighten.

| | A government implements deregulation and privatises state-owned utilities. Predict the effect on (a) market competition, and (b) productive efficiency. |

(a) Competition increases as barriers to entry fall.
(b) Productive efficiency increases due to private profit incentives.

| | A country reduces its corporate/business tax rates. Predict the effect on (a) business investment, and (b) the position of the LRAS curve. |

(a) Investment increases because firms retain more resources.
(b) LRAS shifts rightward, expanding productive capacity.

| | A government cuts personal income taxes. Predict the effect on (a) workers' motivation to work extra hours, and (b) aggregate supply. |

(a) Motivation increases due to higher take-home pay.
(b) Aggregate supply increases (shifts rightward) as labor input rises.

| | Why does anti-monopoly regulation act as a market-based supply-side policy rather than a restrictive business control? | It promotes competition by preventing single firms from dominating markets and restricting output. | | How does reducing trade union power increase labour market flexibility? | It allows wages to respond flexibly to market supply and demand conditions rather than collective bargaining agreements. | | How does trade liberalisation act as a supply-side policy to improve domestic efficiency? | It exposes domestic firms to global competition, forcing them to reduce costs and innovate. | | Why does a lower capital gains tax encourage long-run economic growth? | It increases the return on investment, encouraging greater savings and investment in productive assets. | | How does removing a minimum wage affect a firm's production costs and the economy's productive capacity? |

Production costs decrease due to lower labor costs.
Productive capacity increases because of higher overall employment.

| | What is the primary objective of market-based supply-side policies regarding the role of government? | To reduce government intervention and allow free markets to allocate resources efficiently. | | How do lower corporate tax rates (such as Ireland's 12.5% rate) affect international capital flows? | They attract foreign direct investment (FDI), boosting domestic business growth and productive capacity. | |

Based on this minimum wage diagram, what does the distance between $Q_s$ and $Q_d$ at the price floor $W_{min}$ represent?

| Unemployment (excess supply of labor) created by the wage floor. | |

Based on this AD/AS diagram, how does the successful implementation of market-based supply-side policies affect the price level and real GDP in the long run?

Price level: falls (from $P_1$ to $P_2$).
Real GDP: rises (from $Y_1$ to $Y_2$).

| | Market-based supply-side policies aim to improve economic efficiency through reduced government intervention and enhanced market mechanisms. | Market-based supply-side policies aim to improve economic efficiency through reduced government intervention and enhanced market mechanisms. | | In the AD/AS model, successful market-based policies shift the LRAS curve rightward, which results in a lower price level and higher real GDP. | In the AD/AS model, successful market-based policies shift the LRAS curve rightward, which results in a lower price level and higher real GDP. | | To improve efficiency, privatisation transfers state-owned enterprises to private ownership, while deregulation removes bureaucratic controls from private sector activities. | To improve efficiency, privatisation transfers state-owned enterprises to private ownership, while deregulation removes bureaucratic controls from private sector activities. | | At a government-imposed minimum wage set above the market equilibrium, the quantity of labor supplied is greater than the quantity demanded, creating unemployment. | At a government-imposed minimum wage set above the market equilibrium, the quantity of labor supplied is greater than the quantity demanded, creating unemployment. | |

| Wages ($) | |

| S of labour | |

| D for labour | |

| Quantity | |

| AS1 | |

| AS2 | |

| LRAS2 | |

| LRAS1 | |

| SRAS | |

| AD |

1. Introduction to Economics2 subtopics

2. Microeconomics12 subtopics

3. Macroeconomics7 subtopics

4. The Global Economy10 subtopics

IB Economics 3.7.2 Market-based Policies Flashcards

1. Introduction to Economics2 subtopics

2. Microeconomics12 subtopics

3. Macroeconomics7 subtopics

4. The Global Economy10 subtopics

Flashcards for 3.7.2 Market-Based Policies

Flashcards for 3.7.2 Market-Based Policies - IB