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Economics 4.1.9
Economics- Edexcel 4.1.9
| Term | Definition |
|---|---|
| external competitiveness | sustained ability of a country’s businesses to sell goods and services profitably at competitive prices in overseas markets |
| core measure of competitiveness is | a nation’s relative unit labour costs expressed in a common currency |
| price competitiveness measured in | differences in relative unit labour costs |
| key aspects of price competitiveness | product quality, innovation, design, reliability, performance, choice,after-sales services, marketing, branding, brand loyalty, availability and cost of replacement parts |
| non-wage cost factors for businesses operating in international markets include | enviro taxes, employment protection laws & costs of meeting health and safety regulations, statutory requirements for employer pensions, employment taxes |
| unit labour costs definition | labour costs per unit of output |
| unit labour costs formula | total labour costs / total output |
| unit labour costs are determined mainly by | average wages or salaries or labour productivity |
| how to lower relative unit labour costs | monetary policy interventions aimed at a currency depreciation/wage controls/supply-side measures designed to raise labour productivity |
| relative labour costs are raised by | appreciating a country’s exchange rate/wage costs rise relatively faster than other nations/slower labour productivity growth |
| relative export prices rise when | appreciation of currency/period of high relative inflation/export businesses experience higher costs/exporters of goods and services are hit by import tariffs |
| indicators of global competitiveness | effectiveness of institutions, quality of infrastructure, macroeconomic performance, health & primary education, higher education & training, efficiency of goods & labour markets, technological readiness, sophistication of business, innovation |
| policies to improve competitiveness | competitive exchange rate, tax environment/investment in human capital/increased research & development/stronger market competition/stable macroeconomic environment/investment in critical infrastructure |
| fiscal policies | subsidies/tax incentives/lower employment taxes/lower capital gains taxes/special economic zones/free ports |
| SEZ | special economic zones |
| micro foundations of competitiveness | competitive markets & innovative businesses, skills, aptitudes and attitudes within a diverse workforce, expanding opportunities for female entrepreneurs/refugees |
| competitive advantage comes form having | globally scaled businesses close to or at the technological frontier, culture of innovative business start-ups or social entrepreneurs, financial system that can provide appropriate and affordable credit |
| races to the bottom | a competitive situation where a company, state, or nation attempts to undercut the competition's prices by sacrificing quality standards or worker safety (often defying regulation), or reducing labor costs |
| internal devaluation | when a country seeks to improve price competitiveness through lowering wage costs and increasing productivity and not reducing the external value of their exchange rate |
| what does an internal devaluation require? | many years of low relative inflation |
| what can bring about internal devaluation? | fiscal austerity |
| what kind of country is internal devaluation more likely to happen in? | one with a fixed exchange rate |
| external devaluation | when a country operating with a fixed or semi-fixed exchange rate system decides to deliberately lower the external value of their currency against one or a range of other currencies |
| devaluation of the currency | a domestic currency buys less of a foreign currencies |
| aim of external devaluation | to make exports more price competitive, reduce size of trade deficit, cut real value of sovereign |
| risks from an internal devaluation | severe loss of output and rising unemployment, fall in nominal wages reduces living standards, risks from sustained price deflation, real value of debt increases, danger of a country suffering a permanent loss of output(hysteresis) |
| hysteresis | an event in the economy that persists into the future, even after the factors that led to that event have been removed |
| drawbacks from an external currency devaluation | cost-push inflation from higher import prices, reduce real incomes due to inflation, no guarantee that trade deficit improves, foreign creditors demand higher interest rates on new issues of government & corporate debt, less attractive to inward FDI |
| benefits of international competitiveness | improved living standards/stronger trade performance from an increase in export sales/virtuous circle of economic growth/employment creation/higher government tax revenues as incomes and profits increase |
| drawbacks of international competitiveness | trade surpluses invite a protectionist response/demand-pull inflation/growing inequality of income and wealth/exchange rate to appreciate |
Created by:
jessharris
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