Assessing the potential of different Economies

Courses Info

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

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

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

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

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

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

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)

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