Supply-side policy
Supply-side policy: build the core model, apply it to evidence and qualify conclusions where outcomes depend on context.
9708 section 5.4; AS Level. Checked against Cambridge's 2026–2028 Version 2 (latest version published December 2025) and 2029 Version 1 (published September 2026). Cambridge states that neither version has significant changes affecting teaching. Always follow the syllabus for the candidate's examination year.
Before you begin
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
In the AD/AS model, what is the intended long-run effect of a successful supply-side policy?
What you will learn
- Explain supply-side policy through LRAS
- Distinguish productivity from productive capacity
- Analyse training, infrastructure and technology tools
- Trace AD/AS effects and evaluate time and cost
Core model and terms
Supply-side policy aims to increase productivity or the economy’s productive capacity, shifting LRAS to the right in the model. Training can raise skills, infrastructure can lower transport or coordination costs, and support for technology can improve production methods. These policies often take time and require resources.
Apply and evaluate
A successful intervention can increase potential real output and may reduce cost pressure, but outcomes depend on design, take-up and complementary investment. Consider opportunity cost, implementation, who benefits and whether the policy addresses the actual constraint rather than assuming every spending programme raises productivity.
Pause and explain
Which statement best applies supply-side policy?
Worked example
A training programme raises output per worker from 20 to 22 units per day. Calculate the percentage productivity increase.
Show the worked solution
- Increase = 22 − 20 = 2 units
- Percentage change = 2 ÷ 20 × 100
- Productivity rises by 10%
Answer Increase = 22 − 20 = 2 units → Percentage change = 2 ÷ 20 × 100 → Productivity rises by 10%
Try a topic test
Choose Easy, Normal or Difficult. Save your answers and open worked review after finishing.
Test this topic →From guided practice to a new situation
Write your answer and reasoning first. Use a hint only if you are stuck. The model solution is for self-checking; your written work is not automatically marked.
A training programme raises output per worker from 20 to 22 units per day. Calculate the percentage productivity increase.
Give me a hint
Divide the increase by the original output per worker.
Compare my reasoning
- Increase = 22 − 20 = 2 units
- Percentage change = 2 ÷ 20 × 100
- Productivity rises by 10%
Increase = 22 − 20 = 2 units Percentage change = 2 ÷ 20 × 100 Productivity rises by 10%
Look for these in your work
- Increase = 22 − 20 = 2 units
- Percentage change = 2 ÷ 20 × 100
- Productivity rises by 10%
Explain how reliable transport infrastructure could shift LRAS over time.
Give me a hint
Connect lower transport frictions with the amount firms can produce sustainably.
Compare my reasoning
- Reliable transport can reduce delays and costs
- Firms can use labour and capital more productively
- Potential output may rise and LRAS may shift right
Reliable transport can reduce delays and costs Firms can use labour and capital more productively Potential output may rise and LRAS may shift right
Look for these in your work
- Reliable transport can reduce delays and costs
- Firms can use labour and capital more productively
- Potential output may rise and LRAS may shift right
Why might a training policy not raise productivity equally in every sector?
Give me a hint
Consider which skills are taught and whether employers can use them.
Compare my reasoning
- Sectors need different skills
- A programme may not match local vacancies
- Employer demand, course quality and access influence the result
Sectors need different skills A programme may not match local vacancies Employer demand, course quality and access influence the result
Look for these in your work
- Sectors need different skills
- A programme may not match local vacancies
- Employer demand, course quality and access influence the result
A productivity policy is funded by reducing health spending. State the economic trade-off that should be assessed.
Give me a hint
Identify the opportunity cost and compare likely benefits.
Compare my reasoning
- Funds are limited
- Health services forgone are an opportunity cost
- Compare long-run productivity gains with service effects and who receives each benefit
Funds are limited Health services forgone are an opportunity cost Compare long-run productivity gains with service effects and who receives each benefit
Look for these in your work
- Funds are limited
- Health services forgone are an opportunity cost
- Compare long-run productivity gains with service effects and who receives each benefit
Common mistakes
- Equating government expenditure with productive success or ignoring the policy’s time lag, opportunity cost and skill or infrastructure match.
What can you explain now?
In the AD/AS model, what is the intended long-run effect of a successful supply-side policy?
Compare with the explanation
An increase in productive capacity and a rightward shift of LRAS
Higher productivity can raise the economy’s potential output.
After trying it yourself, choose your next review. This is your self-assessment.
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Make it stick
Before moving on, explain the central idea in supply-side policy and state one condition that could change its effect.
If you needed the solution, close it and solve the problem again from a blank page. A correct answer is stronger when you can explain the reason for each step.