IB Economics: Practice Internal Assessment
The article “Chinese Dragon bites Local manufacture as Importers laughs last” stated that the imported products, majorly from China have became a threat to the local economy in Uganda. The Ugandan government have taken measure ease production on local traders by scrapping the pre-inspection fees and planning to construct industrial parks to lower the hiking cost of production of local products.
Chinese products are cheaper and more competitive comparing to the local products in Uganda due to a low cost of production and government subsidy. The government subsidy paid to the small industries in China will lead to an increase in supply because it artificially reduce the cost of production of these producers. It is more likely that the Chinese importers will be encouraged to produce more therefore there will be an increase in supply. The graph below shows the results of the subsidy:
The figure shows the subsidy shifting the supply curve to the right from S to S’. The increase in supply will lead to a decrease in price from P to P’, where P’ represents the price paid to the Ugandan consumers after the subsidy is created. Therefore the price drop will lead to an increase in the quantity demanded of the imported products among the Ugandan consumers.
The Chinese importers and the individual Ugandan consumers are undoubtedly the largest group to benefit from the subsidy. The subsidy will shift the demand curve to the right, this will decrease the price paid by the Ugandan consumers and increase the profit gained by the Chinese manufactures. The Ugandan dealers who sells these subsidized product are also one the winners because these products cost so cheap at wholesale that they can make so much more profit on each sale.
Ugandan products are relatively more expensive due to the hiking cost of production, such as high electricity tariff, capital and labour shortages, and the dependency on importing materials with...
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