International Competitiveness

Question 1

Measures of international competitiveness

Answer 1

• Relative unit labour costs: calculated by dividing the average wage in one country by the productivity of labour in that country, then comparing the ratio
• Relative labour costs: lower = greater competitivity

Question 2

Factors influencing international competitiveness

Answer 2

• exchange rates
• wage costs
• non-wage costs
• supply side policies

Question 3

How exchange rates influence competitiveness

Answer 3

• A fall in the exchange rate will make price of exports decrease and therefore increase competitiveness

Question 4

How wage costs influence international competitiveness

Answer 4

• Increase in minimum wage would increase costs of production as is a variable factor. An increase of costs will shift SRAS - increase price level. A decrease in international competitiveness

Question 5

How non-wage costs influence international competitiveness

Answer 5

• If there is less regulation e.g. heath and safety. Decrease in costs therefore more internationally competitive
• Lower corporation tax -. reduce production costs

Question 6

How supply side policies influence international competitiveness

Answer 6

• Reduction in corporation tax. Less tax to the government, goods are cheaper.
• Decrease of spending on health care -> fewer nurses and doctors, more people ill -> less productivity -> less international competitive
  (any policy that aim to increase AS)