3.6 Firms and production

The central bank of Madagascar intervenes in the country's foreign exchange market. However, Madagascar has a largely market economic system. Nearly 70% of Madagascar's population live in poverty. Most of the country's industries are labour-intensive. In 2020, Madagascar had an economic growth rate of 6% and a deficit on the current account of its balance of payments of $0.6bn.

b) Explain two reasons why a firm may adopt labour-intensive production. [4]

Safiye Ali became the first female doctor in Turkey in 1923. By 2020, 40% of Turkish doctors were women. Over this period, labour productivity increased. Turkey also experience advances in technology, a change in the current account balance on its balance of payments and a significant increase in the size of population.

a) Identify two causes of an increase in labour productivity. [2]

In 2019 India became the world's largest producer of sugar. Sugar cane is grown in the country by a large number of mainly low-income farmers. They sell sugar cane to mills which process the sugar cane into sugar. Processing the sugar cane is more capital intensive than growing it. The Indian government sets a minimum price for sugar cane and subsidises the export of sugar.

b) Explain two advantages of capital intensive production. [4]

In 2018, the US had its lowest unemployment rate for 18 years. Cyclical unemployment was very low and so was the rate of inflation. The US also experienced a rise in labour productivity. However, it did not do so well in reducing poverty. In 2018, approximately 12% of Americans were living in poverty.

b) Explain two ways a firm could increase the productivity of its workers. [4]

Consumers in Uruguay are eating more processed foods. Factors of production, including enterprise, have responded to this change. Firms in the processed food industry have become more capital-intensive. All of Uruguay's industries were affected by the rise in its inflation rate, from 6.2% in 2017 to 7.7% in 2018.

c) Analyse why a firm may become more capital-intensive. [6]

Cyclical unemployment is below the national average in some big cities in Canada such as Toronto, Vancouver, and Montreal. This could be a result of higher government spending and tax cuts in big cities. However, productivity is low. There are also concerns that structural unemployment may increase as some industries cannot compete with more efficient foreign firms.

b) Explain two causes of low productivity. [4]