International Trade and Business Growth - Exports and Imports - 4.1.2

Exports - Goods produced in one country and shipped to another country for future sale or trade. The sale of such goods adds to the producing nation's gross output. If used for trade, exports are exchanged for other products or services in other countries.

Imports - Commodities, products or services brought in from abroad for sale.

Balance of payments = Exports - Imports. This explains the financial relationshio between the UK and rhe rest of the world.

Currency Appreciaition - An increase in the value of one currency in terms of another

Currency Depreciation - The loss of value of a country's currency with respect to one or more foreign reference currencies.

Price elasticity of demand (PED) - Measures the extent to which the quantity of a product demanded is affected by a change in price. 

FACTORS AFFECTING EXPORTS AND IMPORTS 

1. The impact of exchange rates
2. Price elasticity
3. The state of the world economy

THE IMPACT OF EXCHANGE RATES

An increase in exports to the US will increase the demand for the £ as the Americans have to pay for these goods and services in £s. Due to an increase in demand for the £, the price of the £ will rise and this is called an appreciaiton. This causes exports to become dearer and imports cheaper (SPICED)

However, the opposite can occur, where the demand for the £ declines. This could cause the price of the £ to plummet and this is called a depreciation. This causes exports to become cheaper and imports dearer (WPIDEC) 

PRICE ELASTICITY

Price elasticity of demand (PED) - Measures the extent to which the quantity of a product demanded is affected by a change in price. 

In the short run, an exchange rate deprecition will make imports more expensive. If the import is price inelastic e.g. petrol, then total spending on the imports will increase. This can cause serious problems for an economy and actually worsen the balance of payments. In particular, there will be inflationary pressure in the economy due to the rise in price. It is very difficult for a government to control this.

In the long run, it is easier to substitute domestic products for imported ones. As consumers, businesses and government become more aware of the increased prices of imports and they will try to change their spending habits. For example, around the globe we are seeing a movement of people away from the use of petrol for cars to alternative forms of transport such as electric cars or cycling. The longer the time frame, the easier it is to renegotiate contracts etc that made prices inelastic.

THE STATE OF THE WORLD ECONOMY

As global demand changes so will imports and exports. A strong economy will import goods and services in order to meet its needs. This might lead to an increase in domestc consumption. However, it might be components or raw materials required in the production process for goods and services. These finished products might then be exported.

As global demand and supply changes so will imports and exports. If an economy increases its productive capacity, this will allow it to increase the supply to the rest of the world. This will lead to an increase in exports especially in goods and services that are in high demand in other countries, for example the USA is the biggrsy economy in terms of global imports.

However, newly rich countries are dramatically increasing their demand for goods and services. As these countries see economic growth the state of the wrold economy changes, as does the pattern of imports and exports. 

China is the biggest economy in terms of global exports. They have used their low costs to supply everything from textiles to electronics. As China sees economic growth their costs will increase e.g. higher wage costs making it more difficult to maintain demand for exports. Many countries utilise their natural resources in order to export e.g. Saudi Arabia is oil rich.

NON-PRICE FACTORS AFFECTING EXPORTS AND IMPORTS

Price is not th only factor in determining exports and imports, for example exports will increase if:

• Real GDP of other countries increases
• Chnages in taste and fashion lead to interest in products
• Price inelastic exports are likelyto see a fall in volume sales but an increase in total revenue
• Productive capacity increases allowing for greater sales of a product
• Product differentiation leads to greater demand for products.