Th4.1: Factors Influencing International Competitiveness

Question 1

What are the first six factors influencing international competitiveness?

Answer 1

exchange rates
productivity
regulation
investment 
taxation
inflation

Question 2

What are the final five factors influencing international competitiveness?

Answer 2

economic stability
flexibility
competition and demand at home
factors of production
openness to trade

Question 3

Exchange rates

Answer 3

a rise in the pound will cause exports to become more expensive, and thus make UK goods less competitive as their prices change - depends on the elasticity of the good and the reaction of the firms

Question 4

Productivity

Answer 4

a rise in productivity will cause a rise in the UK’s competitiveness because costs are lower and so prices will fall. labour productivity is important

Question 5

Regulation

Answer 5

high levels of regulation slow down business decisions, making them less adaptable to changes in the global market - also increases cost of production. therefore regulation reduces competitiveness because of higher costs and slow decision making

Question 6

Investment

Answer 6

investment in infrastructure improves productivity and ensures firms can deliver their product reliably, cheaply and efficiently. investment in research/development allows firms to develop new products, increasing competitiveness and new tech, reducing costs and increasing efficiency

Question 7

Taxation

Answer 7

high levels of taxation reduce investment and so cause a reduction in international competitiveness in the long term - it can also reduce incentives for individuals to take risk, decreasing innovation

Question 8

Inflation

Answer 8

low levels of inflation increase competitiveness since UK goods increase in price by less than goods in other countries and so become more competitive over time

Question 9

Economic stability

Answer 9

if the country is not seen as stable, then there will be little long-term investment and so will reduce competitiveness over time

Question 10

Flexibility

Answer 10

if labour market is flexible, competitiveness will improve as businesses will be able to move labour in response to changes in demand and prevent unnecessary wage risks - keeps costs and prices low.

Question 11

Competition and demand at home

Answer 11

a good level of domestic demand will mean firms in country have low AC curves, as they will already be producing in large numbers - experiencing economies of scale. High levels of competition means firms have to have good quality/cheap products to survive

Question 12

Factors of production

Answer 12

a country with a lot of good quality factors of production will be able to produce more and better quality goods than a country which has limited or poor quality resources

Question 13

Openness to trade

Answer 13

means trade barriers will be low so other countries are likely to have low barriers on goods coming from the UK, meaning it is easier and cheaper to export - also means firms inside UK won’t suffer from high costs of production due to import barriers