Deficits & Surpluses (Cambridge (CIE) IGCSE Economics): Revision Note

• Low productivity raises costs

• Exporting firms with low productivity may find themselves at a price and cost disadvantage in overseas markets which will decrease competitiveness and the level of exports
  
  

• Currency appreciation makes a country's exports more expensive relative to other nations

• Foreign buyers look for substitute products which are priced lower

• Exports fall and the balance on the current account worsens

• Similarly, currency appreciation makes imports cheaper

• Domestic consumers may switch demand to foreign goods and as imports rise, the balance on the current account worsens

• A relatively high rate of inflation makes a country's exports more expensive than other nations

• Foreign buyers look for substitute products which are priced lower

• Exports fall and the balance on the current account worsens

• Similarly, high inflation may mean that goods/services are cheaper in other countries

• Domestic consumers may switch demand to foreign goods and as imports rise, the balance on the current account worsens

Rapid economic growth resulting in increased imports

Non-price factors such as poor quality and design

• Rapid economic growth raises household income

• Households respond by purchasing goods/services from abroad and the balance on the current account worsens
  

• When a country develops a reputation for poor quality and design, its exports fall as foreign buyers look for better substitutes elsewhere

• Domestic buyers who are able to shop abroad also choose to buy better quality products elsewhere and the level of imports rise

• High productivity decreases costs

• Exporting firms with high productivity may find themselves at a price and cost advantage in overseas markets which will increase competitiveness and the level of exports
  
  

• Currency depreciation makes a country's exports less expensive relative to other nations

• Foreign buyers increase their purchases and the level of exports rises

• Similarly, currency depreciation makes imports ,ore expensive

• Domestic consumers may switch demand to locally produced products and the level of imports falls

• A relatively low rate of inflation makes a country's exports less expensive than other nations

• Foreign buyers increase their purchases and the level of exports rises, improving the balance on the current account