international competitiveness

Question 1

what is the definition of international competitiveness?

Answer 1

the degree to which a country can produce goods and services which meet the test of international markets, whilst simultaneously maintaining and expanding the real incomes of its people over time

Question 2

when are countries said to have increased their international competitiveness?

Answer 2

if their goods and services are more desirable and thus increasingly demanded by overseas buyers but the peoples standard of living must also rise.

Question 3

what determines a countries international competitiveness?

Answer 3

the price of their exports

Question 4

what affects the price of a countries exports?

Answer 4

• inflation
• wages
• labour productivity
• the exchange rate

Question 5

how can international competitiveness be measured?

Answer 5

• trade weighted index
• real unit labour costs
• novel indicators

Question 6

what is the trade weighted index?

Answer 6

it measures the value of the australian dollar against the currencies of a number of its major trading partners
- if the TWI has risen this means the AUS has appreciated against major trading partners so our exports are more expensive and thus IC declines.

Question 7

what is the real unit labour costs?

Answer 7

an index which compares changes in the average wage to change in labour productivity
- if the index rises it indicates a decline in IC as it means wages are rising in excess of productivity = higher prices

Question 8

what is the big mac index?

Answer 8

compares the cost of purchasing the burger in different countries
- purchasing power parity theory suggests a BM should cost the same, the fact that it doesn’t highlights the cost of producing a BM varies.

Question 9

what is the law of one good?

Answer 9

identical goods should be sold everywhere for the same price.