Assessing the potential of different Economies

Level: AS Levels, A Level, GCSE – Exam Boards: Edexcel, AQA, OCR, WJEC, IB, Eduqas – Economics Revision Notes

Factors influencing expansion into a market

Ease of doing business

• The ease of doing business is influenced by several factors: government policies, political stability, corruption, and stability of the economy
• A firm is more likely to expand into the market if it is easier for others to do business with
• This will encourage firms to increase production, while keeping costs low

Exchange Rate

• UK exports will become more price competitive if there is a depreciation in the pound and the demand for goods / services is price elastic
• To increase sales, firms could reduce the price of the good in the export market
• To increase profit margins, they could keep the price the same
• UK exports are also likely to increase if consumers and firms have more confidence, as well as greater household income
• Imports become more expensive when there is a depreciation in the pound – if firms are net importers, this will lead to higher costs of production
• Firms can also become less internationally competitive, reducing the profits they make

Factors influencing the location of production sites

Cost of production

• Lower costs of production make the location of production appear more attractive
• Recently, production in China has become more expensive due to higher average incomes – so other countries such as Mexico have become more attractive for production
• Skills and availability of workers also affect cost of production

Natural Resources

• Countries with easy access to natural resources are more attractive as the production costs are likely to be low

Government Incentives

• Governments can provide subsidies to firms to incentivise production
• Production costs will be lower, encouraging firms to produce in a particular country

Return on Investment

• Firms will tend to locate themselves where the return on investment is high as it makes planning predictable and ensure a steady cost of production

Quick Fire Quiz – Knowledge Check

1. Explain how the ease of doing business with a firm influences its expansion into a market (4 marks)

2. Explain how exchange rates impact a firms expansion into a market (6 marks)

3. Identify and explain four factors influencing the location of production sites (8 marks)

Next Revision Topics

• Technological Change
• Growing Economies
• Economic Growth
• Measuring Growth
• Strategies to promote Growth and Development
• What factors limit Growth and Development?

A Level Economics Past Papers

• AQA
• Edexcel
• OCR
• WJEC