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Explain how differences in Opportunity Cost gives rise to international trade - Discuss the most important influences on the UK's International Competitiveness.

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Introduction

Economics: International Trade The United Kingdom's Balance of Payments on the current account is consistently in deficit. This is due to a poor performance of international trade. a) Explain how differences in Opportunity Cost gives rise to international trade. b) Discuss the most important influences on the UK's International Competitiveness. a) International trade is important to the economic growth and development of countries. Both developed and developing countries prosper from increasing interdependence and trade. Put simply, the standard of living that a country enjoys depends almost entirely on its ability to best satisfy people's wants and needs with the scarce resources available. That is, how well a society can translate its scarce resources into goods and services that are most desired will determine whether a poor country can break its cycle of poverty and whether a rich country can take its economy to new heights. Many factors determine a country's ability to produce goods and services: the amount and quality of the factors of production (labour, physical capital, human capital, and natural resources), technology, political stability, and a policy climate that fosters reliance on markets to allocate scarce resources and promotes free trade. ...read more.

Middle

A different sort of example may help to clarify this point. Even if a company CEO were a better typist and better at managing the company, the CEO would still be wise to hire a secretary to do the typing. Because the opportunity cost of his or her time spent typing is higher than the secretary's. That is, the margin of the CEO's superiority in managing is greater than his or her margin of superiority in typing. Comparative advantage is extremely important, because it has significant policy implications for a country. In general, it shows that a country can benefit from trade across a wide range of circumstances, suggesting that protectionist policies limiting free trade are much less likely to promote economic growth. Comparative advantage shows us that increased globalisation is much like technological improvements; it allows a country to consume more goods and services using the same amount of scarce resources. A country has comparative advantage over another in the production of a good if it can produce it at a lower opportunity cost. ...read more.

Conclusion

These problems are compounded by a shortage of skilled managers. R&D and innovation. The latest international comparisons show UK R&D performance falling even further behind our main international rivals. This has consequences not only for our ability to develop innovative ideas (another area of weakness revealed by the indicators) but also to adopt and adapt ideas developed overseas. UK strength in science is not yet paying the dividends it should in terms of commercial results. Enterprise. Although the UK has a supportive business environment for entrepreneurs, attitudes to risk taking more generally are perceived as being out of step with an entrepreneurial society. This contributes to a cautious approach towards innovation in large firms and to difficulties small firms face in obtaining finance or attracting experienced managers. Investment. The UK has suffered from decades of under investment, both public and private. Business expenditure on fixed capital per worker still compares poorly with other G7 countries, despite the need to build up our stock of capital per worker to levels seen elsewhere. Finance may be a constraint for some companies but workforce skills, the quality of management and attitudes to risk seem to be more of a problem. ...read more.

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