4.1.9 International competitiveness Quiz: Pearson Edexcel Economics A, Unit 4

The 20 questions

1. Which of the following is a measure of international competitiveness?

   • The total population of the country relative to the population of its trading partners in each year
   • Relative unit labour costs, comparing unit labour costs with those of a trading partner or competitor
   • The number of hours worked per week by the average worker in the country each year
   • The average age of the country's manufacturing workforce compared with the average age in its region

2. Unit labour cost is calculated as wage divided by productivity. A worker earns £20 an hour and produces 5 units an hour. What is unit labour cost?

   • £0.25 per unit, since 5 divided by 20 gives the cost of labour for each unit made
   • £4 per unit, since 20 divided by 5 gives 4
   • £25 per unit, since 20 plus 5 gives the total cost of making one unit
   • £100 per unit, since 20 multiplied by 5 gives the cost of the hourly output

3. Country X has unit labour costs of 4 and Country Y has unit labour costs of 5, both in the same currency. What is the relative unit labour cost (X relative to Y), and what does it imply?

   • 1.25, meaning X has higher labour cost per unit and so is less competitive on this measure
   • 1.0, meaning the two countries are equally competitive on labour cost per unit of output
   • 0.8, meaning X has lower labour cost per unit and so is more competitive on this measure
   • 0.2, meaning X is far less competitive than Y because its unit cost is a fifth of Y's cost

4. Productivity rises by 10 per cent and wages rise by 5 per cent. What happens to unit labour costs, all else equal?

   • They fall by about 4.5 per cent, since 1.05 / 1.10 is about 0.955
   • They fall by exactly 10 per cent, since unit labour costs depend only on the change in productivity
   • They rise by about 15 per cent, since the productivity and wage changes are added together
   • They rise by about 5 per cent, because wages are the only determinant of unit labour costs in any economy

5. Which factor influences a country's international competitiveness?

   • The colour of the national flag, which signals the national identity of the country's firms to buyers abroad
   • The average height of the population, which determines the physical size of goods produced and exported
   • Productivity growth, the exchange rate, the quality and design of products, and innovation
   • The number of public holidays each year, which determines the amount of time workers spend producing output

6. Which measure of international competitiveness compares a country's export prices with those of its competitors in a common currency?

   • Gross domestic product per head, measured at current market exchange rates in a single year
   • The rate of unemployment for the working-age population, measured using the national labour force survey
   • The balance on the financial account, which is recorded in the capital and financial account each year
   • Relative export prices

7. Which is a benefit of being internationally competitive?

   • Rising import dependence, because competitive exporters always import more of their inputs from abroad
   • A fall in the demand for the country's goods, because competitive firms charge lower prices than rivals
   • Growth in export sales and employment, and possibly an improvement in the current account balance
   • Falling employment, because competitive firms need fewer workers to produce the same output as before

8. Which is a problem for a country that is internationally uncompetitive?

   • Rising export sales, because uncompetitive countries export more goods to buyers who are not price-sensitive
   • Falling export sales and rising import penetration, which can cause job losses and a worsening current account
   • Lower imports, because uncompetitive firms rely on domestic inputs and so reduce their import spending
   • A rise in the value of the currency, which always results from a loss of competitiveness in world markets

9. A country's currency appreciates by 10 per cent and its wages and productivity are unchanged. What is the most likely effect on its price competitiveness?

   • It is unchanged, because price competitiveness depends only on the number of workers in the export sector each year
   • It improves, because a stronger currency makes the country's exports cheaper in the currencies of its trading partners
   • It improves by exactly 10 per cent, because the exchange rate fully offsets any loss of competitiveness in export prices
   • It worsens, because its exports become more expensive in foreign currency terms, reducing their price competitiveness

10. Why might a country with higher unit labour costs than its rivals still export successfully?

    • Higher quality, design, brand reputation or innovation can allow it to charge higher prices that foreign buyers accept
    • Higher unit labour costs always lower the price of exports, which makes them more attractive to buyers in every market
    • Unit labour costs have no connection to export prices, so the country's exports are unaffected by its cost position
    • Exporters with high unit labour costs are protected by law from any competition from foreign firms in every market

11. Which of the following would most directly improve a country's relative unit labour costs?

    • Wage growth that outpaces productivity growth, because higher incomes always raise the competitiveness of exports
    • Productivity growth that outpaces wage growth relative to the country's main competitors
    • A rise in import tariffs, which lowers the wages paid to workers in export industries in the economy
    • A rise in the exchange rate, which by itself lowers unit labour costs measured in domestic currency terms

12. Which best describes the difference between price and non-price competitiveness?

    • Price competitiveness depends on quality and design, while non-price competitiveness depends only on the cost of labour
    • The two terms are identical measures of the same thing, so the distinction has no meaning in economic analysis
    • Price competitiveness depends on costs and prices, while non-price competitiveness depends on quality, design, reliability and service
    • Price competitiveness is measured in the domestic currency only, while non-price competitiveness is measured in foreign currency

13. A country's relative unit labour costs rise over several years while its rivals' costs fall. What is the most likely long-run consequence?

    • Its export growth will accelerate automatically because higher unit labour costs always signal a stronger economy
    • Its export growth may slow and its market share may fall, putting pressure on jobs and the current account
    • Its market share will rise, because buyers prefer to pay higher prices for exports from countries with higher costs
    • Its current account will improve sharply, because higher unit costs reduce the demand for imports in the domestic market

14. Which policy would be most likely to improve international competitiveness over the long run?

    • Supply-side policies such as investment in skills, infrastructure and innovation that raise productivity
    • A permanent fall in productivity, which lowers the wages paid to workers and so reduces unit labour costs
    • A permanent ban on all foreign investment, which protects domestic firms from competition in every market
    • A rise in the exchange rate that is maintained for many years, which by itself makes exports cheaper abroad

15. Which is the most accurate evaluation of relying on a weak exchange rate to gain competitiveness?

    • It always reduces inflation and raises real wages in every sector, so there are no costs to the economy
    • It can give a short-term boost to exports, but it raises import prices and does not address underlying productivity problems
    • It has no effect on competitiveness, because exchange rates only influence the financial account and not trade
    • It always provides a lasting gain in competitiveness, because lower prices in foreign currency never change over time

16. Which of the following is a non-price measure of competitiveness?

    • The ratio of exports to GDP, which shows how much output is sold abroad in a year
    • Relative unit labour costs, which compare wages and productivity with those of competitors
    • Relative export prices, which compare the prices of exports with those of competitors
    • Product quality and reliability, as judged by buyers

17. Country X has unit labour costs of 6 and Country Y has unit labour costs of 4, in the same currency. What is the relative unit labour cost of X to Y, and what does it show?

    • 1.0, meaning the two countries have identical unit labour costs and so the same competitiveness
    • 1.5, meaning X has higher unit labour costs and so is less competitive on this measure
    • 2.0, meaning X has double the output of Y from the same number of workers in the economy
    • 0.67, meaning X has lower unit labour costs and so is more competitive on this measure

18. Wages rise by 8 per cent and productivity rises by 3 per cent. What happens to unit labour costs, all else equal?

    • They are unchanged, because productivity and wages always move in equal proportions in every economy
    • They rise by about 11 per cent, since 8 plus 3 gives the total percentage change in unit labour costs
    • They fall by about 5 per cent, since productivity growth always cuts unit labour costs by the difference
    • They rise by about 4.9 per cent, since 1.08 / 1.03 is about 1.049

19. What is the most important limitation of using relative unit labour costs alone to judge international competitiveness?

    • It ignores non-price factors such as quality, design, brand and reliability, which also affect buyers' choices
    • It is always calculated in a single currency, so it shows the same competitiveness for every country in the world
    • It uses the number of hours worked, which is not recorded in any country's official statistics at all
    • It measures only the cost of capital, so it cannot show anything about the labour costs of firms in any country

20. Which is an example of a problem of international uncompetitiveness showing up in the labour market?

    • A rise in wages in every sector, because uncompetitive firms are forced to pay higher wages to attract staff
    • Rising unemployment in export-oriented sectors as orders move to lower-cost foreign rivals
    • A fall in the number of people looking for work, because uncompetitive firms reduce the need for training
    • Falling unemployment in export-oriented sectors as firms take on more workers to meet rising foreign demand

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