Introduction to International Competitiveness Flashcards
What is the impact of a reduction in the cost of production?
SRAS only shifts if there is a change in the cost of production. A reduction in the cost of production will mean that firms are willing to supply more for the same price and so SRAS will shift right.
Workers in a German fridge company are very productive. What does this mean?
Unit labour costs will be lower
What is the most likely impact of an increase in the UK minimum wage?
A higher minimum wage means that the total labour cost will increase which will also increase the unit labour cost. This is likely to make the UK less competitive.
Which of the following is the correct formula for unit labour costs?
Unit labour cost is the cost of labour per unit produced, so:
Unit labour cost = Total wage cost/Total Output
Benin’s global competitiveness index rating is 3.47 and India’s is 4.59. Which country is more competitive?
India is more competitive as they have a higher competitiveness rating.
International Competitiveness
A country is more competitive if their exports are sold at a lower price or a higher quality than other countries.
Unit Labour Costs
Unit labour cost is the cost of wages per unit of output produced.
Unit Labour Cost Formula
Unit Labour Cost = Total Wage Cost/Total Output
Global Competitiveness Index
An index which attempts to rate the international competitiveness of different countries based on a variety of factors.
The three measures of international competitiveness are:
- Export prices
- Unit Labour costs
- Global Competitiveness Index
Are wages a fixed or variable cost?
Variable costs increase as output increases. For example, if a restaurant has a busy shift or wants to expand their output they will need to hire more workers and this will increase their wage costs.
Fixed costs, on the other hand, stay the same as output increases e.g. rent.
In Australia, employers have to contribute a percentage of their employees’ earnings towards a pension pot. In Iran, there is no pension scheme for employers to contribute towards. On this basis, which country is likely to be more competitive?
Iranian employers do not have to contribute towards pensions. This reduces their labour costs meaning the cost of production is lower in Iran. This shifts Iran’s SRAS to the right and decreases the price level, making Iran more competitive.
What is the likely impact of a reduction in corporation tax?
A reduction in corporation tax means that firms do not have to pay as much of their profit to the government meaning costs decrease. This will shift SRAS to the right and decrease the price level.
Which of the following alternatives is a likely impact of more people being unhealthy or ill?
If more workers are unhealthy or ill they will be less productive at work. The productivity of labour will decrease and the LRAS will shift to the left.
What does supply side policy do??
Supply-side policies can increase long run aggregate supply and short run aggregate supply. An increase in SRAS, LRAS or both will decrease the price level which will make exports cheaper and increase competitiveness.
