infant indruistirs Flashcards
What is an impact of low productivity?
\If workers are unproductive then they will be producing low levels of output. This will then increase the average cost of production as the workers are inefficient.
What are internal economies of scale?
DA decrease in long run average costs due to an increase in the quantity produced
Brazil’s tobacco industry is huge and firms have large economies of scale. Malawi’s tobacco industry is small and firms don’t have economies of scale. What type of industry is Malawi’s tobacco industry?
An infant industry
What is the likely impact of higher costs?
High costs will force firms to keep prices high, which will make them less competitive, meaning people will demand less of their products and profit will decrease. A decrease in profit will then mean the government collects less corporation tax and has less money to spend on development.
Infant industries are industries which are too
Infant industries are industries which are too young or small to benefit from economies of scale .
What are average costs like for infant industries?
High
Complete the following statement: High costs will keep the ____ run aggregate supply curve to the ____ . This increases the price ___ which means that firms are less and so they make less . This will then decrease tax revenue, which means that the government has less money to spend on .
Complete the following statement: High costs will keep the short run aggregate supply curve to the left . This increases the price level which means that firms are less competitive and so they make less profit . This will then decrease corporation tax revenue, which means that the government has less money to spend on development .
There are four types of restriction on free trade:
- Tariffs - a tax on imports
2. Quotas - a limit on the quantity of goods which can be imported - Subsidies - money given to producers by the government
- Non- tariff barriers - such as health and safety regulations
What are the two effects of an outward shift of a country’s short run aggregate supply curve?
The chain of reasoning is: Right shift of SRAS → Decreases price level → Increases competitiveness → More profit → More corporation tax revenue → More government spending on development → More development
What are the two effects of an outward shift of a country’s short run aggregate supply curve?
The chain of reasoning is: Right shift of SRAS → Decreases price level → Increases competitiveness → More profit → More corporation tax revenue → More government spending on development → More development
If SRAS doesn’t shift out as much, real won’t increase as much and businesses won’t make as much extra . This means the government won’t collect as much tax and so economic will be limited.
If SRAS doesn’t shift out as much, real GDP or Gross Domestic Product won’t increase as much and businesses won’t make as much extra profit . This means the government won’t collect as much corporation tax and so economic development or growth will be limited.
Which of the following explains why protectionism and subsidies might not lead to economic development?
Protectionism and subsidies can create a culture where businesses become overly dependent on government support, which can mean that they become inefficient.
There are two main ways to depreciate a currency:
decrease the interest rate
2. Sell the domestic currency
Which of the following will occur following a devaluation of China’s exchange rate?
We need the opposite of SPICEE here - a reduction in the value of China’s currency will mean that its imports become more expensive and its exports become cheaper.
Which of the following policies could Thailand use if they want to devalue their fixed exchange rate?
Hot money involves investors moving their money between countries in search of the highest rate of return. A decrease in the interest rate in Thailand will decrease the rate of return in Thailand and hot money will leave Thailand in search of higher interest rates. This will decrease demand for baht - and a decrease in the demand for a currency will decrease the exchange rate and lead to a depreciation.
What is the impact of a very low exchange rate on the price of imports?
A very low exchange rate is the opposite of SPICEE. A low exchange rate makes imports more expensive as more of the domestic currency is required in order to buy foreign currencies.
What is a competitive devaluation?
A competitive devaluation is when you devalue your fixed exchange rate in order to keep your exports competitive.
Once a country has devalued their exchange rate, their exports will become ____ and more competitive. This makes it easier for ____ industries to compete with larger industries, and so they make more ____. They can use this profit to ____, which will eventually decrease their own costs, causing the ___to shift to the right.
Once a country has devalued their exchange rate, their exports will become cheaper and more competitive. This makes it easier for infant industries to compete with larger industries, and so they make more profit . They can use this profit to invest , which will eventually decrease their own costs, causing the SRAS or short run aggregate supply to shift to the right.
What are the two effects of an outward shift of a country’s short run aggregate supply curve?
Right shift of SRAS → Decreases price level → Increases competitiveness → More profit → More corporation tax revenue → More government spending on development → More development
A competitive depreciation might not lead to growth and development if other countries by also depreciating their currency. This means that you will need to depreciate your currency even and eventually there could be a currency .
A competitive depreciation might not lead to growth and development if other countries retaliate by also depreciating their currency. This means that you will need to depreciate your currency even more and eventually there could be a currency war .
Are protectionism and devaluing exchange rates a market based or interventionist policy for development?
Protectionism and devaluing exchange rates are interventionist policies for development as the government is actively intervening in the foreign exchange market and to protect the country from imports
Which of the following shows the impact that infant industries can have on economic development?
High costs will force firms to keep prices high, which will make them less competitive, meaning people will demand less of their products and profit will decrease. A decrease in profit will then mean the government collects less corporation tax and has less money to spend on development.
The chain of reasoning is: Infant industry → Low output → High average costs → Left shift of SRAS → Increases prices → Decreases competitiveness → Less profit → Less corporation tax revenue → Less government spending on development → Limits development
How can protectionism be used to increase economic development?
Protectionism can take the form of giving subsidies to producers.
The chain of reasoning is: Subsidies → Decrease average costs → Right shift of SRAS → Decreases price level → Increases competitiveness → More profit → More corporation tax revenue → More government spending on development → Increases development
Why might protectionism not be beneficial in increasing economic development?
Producers could become inefficient
How can a competitive devaluation be used to promote economic development?
A competitive devaluation is when you devalue your fixed exchange rate in order to keep your exports competitive.
The chain of reasoning is: Competitive devaluation → Decrease price of exports → Increase profit for exporters → Investment in machinery → Decrease average costs → Right shift of SRAS → Decreases price level → Increases competitiveness → More profit → More corporation tax revenue → More government spending on development → Increases development
