Sunday, February 12, 2012

Unit 4: Protectionism 20 Marks



Assess the main economic determinants of a country's demand for imports (20)





An import is a good or service which enters a country resulting in money leaving the economy. Although goods/services are entering the country, the result is a withdrawal of the circular flow of income as money leaves the economy. 

One reason a country would want to import is the fact that they would like to remain competitive in foreign markets, thus leading to an increase in the imports for new machinery. For example, the UK want to stay competitive in the agriculture industry so they import the newest, most efficient farming machinery to allow them to be more specialised in the industry compared to competition from foreign countries. So trying to improve the dynamic, allocative and productive efficiency of an industry is a determinant which would affect the demand for a country’s imports.

The income of the people within a country affects a country’s demand for imports. Usually, people with higher incomes tend to demand imports because imports tend to be better quality and they are more expensive than domestic goods. The imported goods are better quality because the goods are made in countries which are speicalised in making that specific good so will make it at a high quality and efficiently for example Japanese cars. The goods tend to be more expensive when you import them because you must pay the import tax (tariffs) which tend to increase the price of the good, so a Japanese car would be cheaper if bought in Japan compared to when it is bought abroad i.e. Egypt. Therefore the average level of income for people within an economy will affect a country’s demand for imports.

Another factor which affects a country’s demand for imports is whether a good is available within the country or not. For example, the UK does not have a large supply of sand and will therefore tend to import the sand from places such as the UAE. Therefore, the supply of a good within a country will affect the demand for imports. This is especially the case when it comes to goods which are vital to a country, for example, oil and energy will be needed in manufacturing and building houses so the UK will demand oil from abroad leading to a rise in the UK’s imports.

Eval. I believe the significance of importing technology to help maintain competitiveness in foreign markets is a major determinant of a country’s imports. The UK especially must stay competitive in order to be able to compete with emerging markets such as China. Therefore, this pressure of trying to stay competitive, efficient and productive is one of the main factors which affect a country’s demand for imports.

Eval. In my opinion, the UK’s main imports arise from foreign firms setting up within the UK and sending their profits back to their domestic country – Japanese car makers set up within the UK and send profits back to Japan (this is an import). Therefore, incomes of people within some countries may not be a major determinant affecting the demand for imports. Also, some goods that are imported are actually the same price as domestic goods because the country is within a trading bloc and there may not be any tariffs. Therefore some goods/services may not be more imported when they are imported so people’s incomes may not be a main determinant in affecting the demand for imports. However, income could become a main determinant because developing countries may have a population earning a low wage so the local people may prefer to live off of local products rather than spend more money for imports. I believe, imports is a peculiar factor and may be a country’s main determinant however it depends on the country you are dealing with!

Eval. As we develop we take for granted that we can get all sorts of products all year round without having to worry about harvests and various other factors. I believe, the main determinant affecting the demand for imports is whether the good or service is available within the country or not. Nowadays, products can be transported from one continent to another in only a matter of days. Therefore, it is relatively easily to import products which are not available within a country and the government will choose to do this because they want their citizens to have as much choice as possible. Also, nowadays, people cannot live without electricity or petrol to power their cars. So for countries without inelastic goods such as oil, the main determinant which affects the level of imports is the supply of these inelastic goods within the country. Again, it depends on which country you are talking about because some countries will have all the essentials it needs and will not import goods and some countries are very socialist and will not import goods even if they are lacking this good within the economy.

For all the factors above, the country we are talking about will determine which factor is the main determinant of a country’s imports.

2 comments:

  1. An import is a good or service which enters a country resulting in money leaving the economy. Although goods/services are entering the country, the result is a withdrawal of the circular flow of income as money leaves the economy. readymade salwar suits wholesale online , salwar catalogue ,

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