Economics Unit 3- Commodities vs Manufactured Goods

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What are the advantages of producing Commodities?

1. Commodities tend to be necessities so there will still be high demand for them even during a global recession so businesses can keep making high levels of profits and there is economic growth.

2. Commodities can be priced very high since they tend to be price inelastic in nature which means higher revenues and profits for firms and more economic growth.

3. Your country may have an absolute advantage in producing it since it is a natural resource. This means that it can be produced at a lower cost compared to other countries and so higher profits are made and higher economic growth.

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What are the disadvantages of producing Commoditie

      1. You cannot add value to commodities which may mean you receive a lower price for the product. Eg bread is more valuable than wheat. This means potentially very low profits and some businesses/ farmers may go out of business so economic growth falls.

       2. The prices of commodities can be volatile which may mean the price can be very low eg. Oil has fallen from $100 to $30 per barrel. This means potentially very low profits and some businesses/ farmers may go out of business so economic growth falls.

       3. If the commodity runs out then you have no goods to export and no profits at all and economic growth falls.

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What are the advantages of producing Manufactured

1. When you manufacture goods it means you can add value to them and sell them for a higher price. This means higher profits and more economic grow  

2. You can sell manufactured goods to the growing economies of China and India as well as MEDC’s. These are large markets so can create lots of jobs, profits and economic growth.

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What are the disadvantages of producing Manufactur

·         You need skilled workers to produce the manufactured goods- without skilled workers the goods will not be high quality and there will be lower profits and economic growth.

·         Manufactured goods tend to be more luxury goods which mean that demand falls in a recession and economic growth will therefore fall.

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Evaluation of producing Manufactured Goods

Evaluation:

It is difficult to know how significant exporting commodities is for causing growth. According to the case study, Nigeria, Tanzania, Mexico and Turkey (MINT) all have high economic growth rates yet Nigeria and Tanzania have high levels of commodity exports (oil and gold) whereas Turkey and Mexico focus on manufactured goods (clothing). This means that the extent to which commodities is significant for economic growth is difficult to know.

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