Economic Policy Objectives

Efficient Allocation of Resources

What is it?

Efficient allocation of resources concerns using resources as productively and efficiently as possible. It concerns resources possessing the three types of efficiency:

  • Technical efficiency - resources can be used to achieve a greater output from the same level of inputs

  • Allocative efficiency - resources are allocated according to their highest value use

  • Dynamic efficiency - resources can be shifted quickly between industries

What is the Target for Efficient Allocation of Resources?

As high as possible.

Why is Efficient Allocation of Resources Important?

Governments should provide free markets that allow for resources to used intensively and efficiently. Governments also have a interventionist role removing market failure to ensure the free and efficient flow of resources.

Efficient allocation of resources is important as it contributes to economic growth. If resources are used in the most efficient way possible then the level of economic growth can be maximised.

How has the Government Promoted Efficient Allocation of Resources?
  • Labour Relation Laws - pay rises linked to productivity rather than inflation to ensure labour resources are productive to ensure incentivised wage increases

  • Free Trade Agreements - forced domestic competition resources to be used more intensively  or change production

  • Deregulation of industries - for example, deregulation of the financial and airline industry

  • Privatisation - increases efficiency of former government business enterprises as they are incentivised by free markets

Case Study: Resource Efficiency during the Mining Boom

A great example of resource efficiency was during the mining boom. High levels of economic growth at 4.3% (ABS March 2012) saw increasing competition for resources. High levels of inflation saw resources becoming more scarce and allocated according to their most valued use. As land values increased, land was being used more intensively, such as more apartments were being built to take advantage of scarce land resources. Most noticeably were the movements in labour who shifted into the mining industry to accumulate high paying FIFO jobs in the mining sector. People changed jobs to work in the mining sector, offering high wages of over $100,000 for lowly skilled work.

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