4.1.9 - International competitiveness

Question 1

How can we measure international competitiveness ?

Answer 1

• Relative unit cost (Lower RULC = more international competitive as they can charge lower prices for their exports).
• Relative export prices

Question 2

What is relative unit labour costs ?

Answer 2

The average cost of labour per unit of output produces in one country in Comparison to another.

Question 3

How can we calculate unit labour costs

Answer 3

Labour cost per unit = (Total labour costs ÷ Total units produced)

Question 4

What is relative export prices ?

Answer 4

Relative export prices compare the prices of a country’s exports to those of its competitors.

Question 5

What are the factors influencing international competitiveness.

Answer 5

• Exchange rates (you know this)
• Productivity (You know this)
• Unit labour costs (You know this)
• Quality (You know this)
• Corporation tax (You know this) - Laffer curve if you speak about tax invasion for investment ?
• Interest rates (Higher interest rates = Increased cost of borrowing = crowding out effect = Draw diagram = Decreased investment = Reduce quality exports = Reduced international competitiveness) - lower interest rates may lead to demand pull inflation.
• Inflation rates ( Higher inflation rates = Higher export prices = reduced international competitiveness)
• R&D
• FDI
• Skillled labour force !!

This is a really good 25 marker btw, please practice it.

Question 6

Benefits of being international competitive.

Answer 6

• Increased export revenues which may increase profits which can be used for investment and so LRAS.
• Increased export demand - labour is demand deceived and so unemployment decreases. - Incomes increase and tax rev increases, investment into the economy and improved standards of living.
• Helps to correct trade imbalance.
• Export led economic growth

Question 7

Disadvantages of being internationally competitive

Answer 7

• Environmental degergation due to water and air pollution. (Neg externalities in health)
• Increased dependency on export led economic growth makes them more vulnerable to changes in demand and external shocks.
• Cyclical and possibly structural unemployment if the market that they are internationally competitive in shuts down e.g steel industry.

Question 8

Problems with being internationally uncompetitive

Answer 8

• Current account deficits.
• Consumer importing more instead will decrease AD which will decrease economic growth.