What are the reasons for, and costs and benefits of microeconomic reform for Australia? Evaluate its effectiveness.

Essay by miss_behaveHigh School, 12th grade October 2002

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In Australia, MER has worked towards improving the productivity and competitiveness of the economy. It appears that the social costs of MER have outweighed the economic benefits. However the positive aspects of reform can be seen more readily in the long-term, if we can control the rate at which reform occurs, and share the benefits more evenly.

Microeconomic reform is defined as 'the changes in government policy directed at improving the efficiency of use and allocation of Australia's resources'. This suggests that MER is about making the Australian economy work better for Australia's own benefit. It requires us to improve the use and allocation of our human and capital resources and ensure we get the best use out of them. Currently, MER is taking place in three major areas of the Australian economy: internationalizing the domestic economy, domestic reform measures and reform of international markets.

There are several reasons why the Australian government promotes microeconomic reform in the economy.

The main aims are productivity growth and increased competition in the international market. MER is said to ensure we get the best use out of our resources, reduce the risk of excessive wage growth and improve market dynamism. The incentive that MER provides with greater economic competition is that consumers can gain access to a range of sellers so they can obtain the best quality and price on a product. Sellers are subjected to the 'invisible hand' mechanism in price setting because of this increased competition. This causes producers to find alternate means of increasing profit such as cost reductions, more effective production methods and marketing strategies. Greater competition in the economy can lead to lower inflation by reducing prices paid by consumers, product improvements, higher output and greater economic growth, all of which provide more jobs and rising incomes.