Microeconomic Policies and Inflation (1 Viewer)

[_ShiFTy_]

Just doing a bit of reviewing for trials in 2 weeks time and one of the examples of microeconomic policies was

"Tariff reforms to increase competition from imports leading to lower prices"

If prices are lower, wouldn't consumers be more inclined to spend more? How would inflation be controlled in the above statement?

 

[red802]

hmm, sounds confusing, if it lead to lower prices, wouldnt that mean the tariff have decreased and prices are low but inflation occurs when the prices are high of the general goods and services.

IF tarrifs increased, it would lead to higher prices, and then it could lead to inflation.

lol im totally confused with this question, if prices are low, what are they complaining about unless the want to increase inflation, they just let the people spend more and eventually it go back up.'

hmm, lol i would like to know the answer also

 

[sf_diegoxrock]

"Tariff reforms to increase competition from imports leading to lower prices"

this is how i see it

tariff reforms - government cuts tariffs and therefore, increases competition as we receive more imports (more producers in play in the market) - thus, domestic markets need to compete with more goods on the market (need to cut prices so consumers buy domestic products rather than imports)

hope that makes sense

Just doing a bit of reviewing for trials in 2 weeks time and one of the examples of microeconomic policies was

"Tariff reforms to increase competition from imports leading to lower prices"

If prices are lower, wouldn't consumers be more inclined to spend more? How would inflation be controlled in the above statement?

if prices are lower, consumers spend more - inflationary pressures increase - RBA needs to control this by increasing interest rates to dampen consumer spending

 

[Riviet]

If prices are lower, wouldn't consumers be more inclined to spend more? How would inflation be controlled in the above statement?

Remember that inflation refers to the general increases in prices. By increasing the competitiveness of domestic businesses through lower prices from increased productivity, consumers demand our domestically produced goods and services and this indirectly reduces imported inflation. Also, due to increased productivity, firms are able to utilises resources and factors of production more efficiently (ie produce more with the same amount) and this contributes to the control of cost push inflation.

 

[Conspirocy]

also,

by opening our economy to foreign competition we are shifting our factors of production from ineffecient industries.

Generally, we stop making these prouducts on a scale that can satisfy the market. This means that our prices are subject to the price fluctuations in other countrys for these imported goods. so if their prices suddenly rise, we have imported inflation.

Further, you have to consider the effect that the increase in imports will have on the balance on goods and services component of the current account. meaning the BOGS will increase as more imports than exports (in theory).

 

[gnrlies]

I woulda thought this was a no brainer

What happens whenever you have increased competition?

Prices go down

Hence inflation is less of a problem.

Certainly impacts on both demand and cost push inflation