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Economics IGCSEPDF 90
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4.5 Supply-Side Policy
Effective Definitions
Supply-Side Policies:Government
measures aimed at increasing the
productive capacity and efficiency of the
economy (increasing Aggregate Supply,
AS).
Productive Capacity: The maximum output
an economy can produce when all
resources are fully and efficiently employed.
Notes: Examples and Effects of
Supply-Side Policy
Supply-side policies focus onimprovingthe
quality and quantity of the factors of
production.
Lower Direct Taxes (Income Tax):
Infrastructure Investment:
○ Action:
roads, rail,and
Deregulation and Privatisation:
○ Action:
● Education and Training:
Action: Increased
government spending on
schools, colleges, and
vocational training.
○
○ Effect: Improves the quality
of labour, leading to higher
productivity and lower
long-run average costs for
firms.
●
●
●
○
○
○
○
Action: Reducing income tax
rates.
Effect: Increases the
incentive to work and save,
shifting the labour supply
curve to the right and
increasing the quantity of
labour supplied.
Removing
unnecessary
rules/laws
(deregulation)
or
selling
state-owned
firms
to
the
private sector (privatisation).
Effect:
Increases
competition and efficiency,
forcing firms to lower costs
and innovate, leading to a
rise in AS.
Building better
telecommunications.
Effect: Reduces firms' costs
of transport and improves
efficiency, leading to higher
AS.