Blog summary-2

tutor2u econs blog, tag "Balance of Payments".

I don't know why, but this is my least favourite topic in the whole AS econs syllabus.. oh well, work is work, it has to be done.

- this post is about UK's biggest trade deficit in goods in services since the records were started in 1657. The deficit exceeds £8.238bn. As it can be seen from the graph below, the gap has been growing since 1998, but now because of the crisis the speed of growth has increased dramatically. Despite the competitive boost given by a depreciating currency, weakening demand in many of the UK’s major export markets is providing an important dampener on the ability of export businesses to provide a rebalancing of aggegate demand in the UK. Imports are also falling as the national belt is collectively tightened.

- another pretty interesting post helps us to answer an essay economics question: "Explain the factors which may help to determine an economy’s export performance". They provide the revision notes which will be helpful when writing an aswer. First of all they define exports and mention the UK's exports, which shows their UK's economy knowledge. After that they say how exports perfomance is measured (% change in volume of exports (real value at constant prices) OR % share of international markets / global trade). Then they provide a list of factors influencing exports perfomance (cost price factors and non-price factors). I think it will be useful for everybody if I copy it here:

Cost and price factors:

1. Unit labour costs: labour costs per unit of output, determined by wages relative to productivity. Thus wage inflation and productivity growth are becoming important
2. Average production costs – driven in the long run by exploiting increasing returns / economies of scale
3. Much depends on the scale of capital investment in export sectors – to drive unit costs down and to build the productive capacity for selling output overseas
4. Export subsidies – can reduce the overseas price of exports – a form of protectionism
5. Changes in the exchange rate
a. A depreciation reduces the foreign price of exported output (cet par) and increases the profitability of exporting
b. Assumes exporters change their prices when the currency moves
c. Appreciation has the opposite effect
d. Much depends on the price elasticity of demand for X and the elasticity of supply of the export sector (i.e. is there sufficient spare capacity)
6. Impact of tariffs and other forms of import control on the prices of exports

Non-price factors (i.e. non-price competitiveness)

1. Quality of product, reliability, after-sales service, design
2. Marketing and branding – ability to sell in different countries and different cultures
3. Importance of innovation, research and development in developing new products, extending brands

No comments: