2d. Net exports

Factors effecting net exports

Exports are goods and services sold to foreigners. Imports are goods and services bought from foreigners. Exports are an important part of total demand in an economy like the UK. The demand for exports and imports is influenced by a number of factors.

Price

• Buyers make decisions partly on the price of a good. The higher the price, the lower the quantity demanded. The price itself depends upon a variety of supply factors including costs.

  Real incomes

• If consumers have more disposable income they are likely to spend more on imports

Factors effecting net exports

The exchange rate

• The exchange rate is the price at which one currency is sold for another. A rise in the value of the pound means that it costs foreigners more to buy pounds with their local currency. This makes exports from the UK ;less price competitive and hence UK exports are likely to fall.
• Equally, a rise in the value of the pound means that UK buyers can buy foreign currency cheaper, making imports more attractive.
• A falling pound will offer the opposite results.

Factors effecting net exports

World and UK income

• When the world economy is booming, foreign income is rising fast. This provides UK exporters with an opportunity to sell more exports.

Non price factors

• Many products are unique in quality. They may have designs protected by patents. It may be a unique service. These are some of the non price factors that affect competitiveness of exports and imports.