British Economy L1: Changing Structure of the UK Economy
- Created by: issyh
- Created on: 29-12-20 13:20
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- Changing Structure of the UK Economy
- Sectors of the Economy
- Primary: activities related to natural resources
- Secondary: goods production in the economy
- Tertiary: services
- Demand and Supply Causes of Structural Change
- Changing Patterns of Domestic Demand
- pattern of demand changes with income levels and taste
- increase in disposable income means more expenditure on services and luxury goods - demand for goods with high and positive elasticities increase
- demand changes due to age structure of population
- with elderly population, more money is spent elsewhere, e.g. in hospitals
- changing demand due to supply-side factors
- fewer younger people in the labour market
- changes in resource availability: restricted oil output= oil products rise sharply in price changes for substitutes, complements
- international competition: changing consumer tastes redistribute economic activity worldwide
- international competition and globalisation
- removal of trade barriers led to intensification of international competition - production shifting away from the UK to lower cost countries
- technology improvements
- greater efficiency with technological improvements and new manufacturing techniques have contributed to long-term decline in prices
- de-industrialising
- UK industrial production has declined relatively more compared to other developed countries since 1960s
- ONS shift in services... 1970: 56% 2016: 80%
- pattern of demand changes with income levels and taste
- Changing Patterns of Domestic Demand
- Causes of Structural Change and Manufacturing Decline
- stages of economic maturity
- changing employment pattern shows transfer of workers from agriculture to industry in 19th century to create a new industrial workforce
- argument weak from 1970 onwards since increased unemployment levels allow for service sector expansion
- low wage competition
- low wages in developing countries are often accompanied by low productivity - lack of skilled labour and shortage of supporting infrastrucutre
- North Sea oil
- 'petrol currency' status on the pound = demand for £ rises, £ appreciates such that £ exchange becomes sensitive to changes in oil prices
- high exchange rate causes exports expensive and imports cheap = adverse effects for output and jobs in industries with overseas competition
- 1990: Sterling was petrol-currency during Gulf crisis and Iraq's invasion of Kuwait caused oil price rise and £ appreciated
- effect of £ exchange rate
- critics argue £ was allowed to remain overvalued in FOREX which damaged Britain's competitiveness and aided decline in manufacturing sector
- 'crowding out'
- decline of British industry due to it being displaced by growth of the non-market public sector
- nationalised industries were marketed with the private sector
- = when increased gov't involvement in a sector of market economy substantially affects the remainder of the market
- productivity
- poor productivity relative to other countries for decades
- growth rate of GDP per hour worked (% per year, 1950-73) ... UK: 2.66 Germany:5.18 France: 4.89
- international competiveness
- UK relative unit labour costs were up 110% relative to competitors which increases costs where competitors were much lower
- decline in manufacturing due to chronic failure to invest in manufacturing
- stages of economic maturity
- Sectors of the Economy
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