evaluate policies which could be used to improve UK competitiveness (3)

Question 1

macroeconomic policies to improve international competitiveness

Answer 1

1. investment in physical + human capital (transportation + education): decr transport + communication costs + reduced travel time for workers -> reduces delays in goods + service delivery AND less geographical immobility of labour -> improves efficiency -> less costs = lower global prices -> better price competitiveness -> more export revenue -> firms get better transport links -> more investment + expansion -> incr. LRAS -> lower price level -> more internationally competitive
   - education: improved human capital -> incr labour productivity -> lower unit labour costs -> more internationally competitive

Question 2

evaluate macroeconomic policies to improve international competitiveness

Answer 2

• significant time lag + high costs; opportunity cost
• mismatch between skills + industry needs

Question 3

microeconomic policies to improve international competitiveness

Answer 3

1. lower corporation tax -> incr investment due to more retained profits -> more spending on R&D and capital -> incr productivity -> incr dynamic efficiency -> lower costs + better quality -> improved price/non-price competitiveness
2. deregulation: firms face fewer legal barriers (e.g. environmental standards + employment laws) -> easier to invest + encourages new entrants -> more competition -> higher efficiency + innovation -> lower prices -> greater non-price -> incr consumer surplus

Question 4

evaluate microeconomic policies to improve international competitiveness

Answer 4

• depends on corporation tax rates from other countries
• difficult to know how much to cut the tax -> too low = less revenue for gov.
• deregulation -> firms may prioritise profit over consumer safety due to less rules
• investment depends on business confidence

Question 5

application points (international competitiveness improvements)

Answer 5

• corporation tax fell to 19% in 2017