Main factors affecting tourism demand

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Main factors affecting tourism demand

By doing so Cotton Land will eliminate its furniture industry. However, it can trade the surplus cloth for furniture. Similarly, Wood Land can direct all its resources to the production of furniture and produce 16 pieces of furniture.

Main factors affecting tourism demand

Although its cloth industry will suffer it can trade the surplus pieces of furniture for cloth bales. Through specialization and trade, the supply of goods in both economies increases, which brings the prices down, making them more affordable.

Law of Comparative Advantage: Even if a country can produce everything more efficiently than another country, there is still scope for trade. A country can maximize its wealth by putting its resources into its most competitive industries, regardless of whether other countries are more competitive in those industries.

This is called the law of comparative advantage. Suppose Cotton Land produces both cloth and furniture better than Wood Land.

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However to achieve greater wealth, each country should specialize in the item in which it enjoys greatest advantage among all the products it produces. In terms of opportunity cost, or the cost of not transferring resources, Cotton Land is twice efficient in producing cloth as furniture.

Whereas, Wood Land should concentrate on furniture and trade it for cloth with Cloth Land. Channeling resources into the most productive enterprise in each country will result in more products to trade.

What are the benefits of international trade?

Even though it makes economic sense to allocate resources to the most productive industries, no country wants to rely on only a few products. This makes the country vulnerable to changes in the world economy, such as recession, new trade laws and treaties, and new technologies.

A country that relies too heavily on one product is especially susceptible to market forces. If demand suddenly drops or if a cheaper alternative becomes available, the economy of that country could be damaged. Many Middle East countries that are largely dependent on their oil exports see their economic fortunes rise and fall in tandem with the oil market.

It is most advantageous to have declining import prices compared with the prices of exports. Exchange rates and productivity differences affect the terms of trade more than any other factors. By developing a diversified economy, a country can make sure that even if some industries are suffering, other, more competitive industries will keep the economy relatively healthy.

Competitiveness is used to describe the relative productivity of companies and industries. If one company can produce better products at lower prices than another, it is said to be more competitive.

This is a matter of concern for governments, since it is difficult for uncompetitive industries to survive. In the long run, competitive depends on: The ability of a society to do this effectively determines whether it can remain competitive in the global economy.

The law of comparative advantage says that a country can become more competitive by directing its resources to its most efficient industries.

5 Major Factors Affecting the Demand of a Product | Micro Economics

Such lower-cost goods are more in demand in international markets. Certain industries that require heavy research and development or capital expenditures cannot be competitive unless they can spread the costs over many units.The demand for a product will be influenced by several factors: Price Usually viewed as the most important factor that affects demand.

Main factors affecting tourism demand

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