The factors of production — practice question

Case-study source: Changes in Ecuador’s economy Ecuador fact file Population: 18m (2019) Number of Ecuadorans living and working abroad: 3m (2019) Change in price in Ecuador’s oil (2014-2016): -50% Change in supply of Ecuador’s oil (2014-2016): -8% Oil accounts for one third of Ecuador’s exports. However, Ecuador has chosen to make less oil and to produce more of other goods and services. This choice has changed the way products are made in Ecuador. For instance, luxury textile output, such as luxury scarves and jumpers, uses fewer capital goods than oil production does. Tourism depends on natural resources, including sunshine and beaches. A reason why Ecuador’s government has promoted less dependence on oil is the big swings that often happen in the oil market. From 2014 to 2016, demand for Ecuador’s exports fell, which led to a marked drop in export revenue. That fall, together with lower government spending, caused the country’s output to shrink. From 2016 to 2019, Ecuador’s economy showed some recovery. Incomes and household spending rose and more cars were bought. Table 1.1 gives the GDP per head ($) and car ownership (per 1000 people) in selected countries in 2019. Table 1.1 GDP per head ($) and car ownership (per 1000 people) in selected countries 2019: Ecuador: GDP per head $6200, Car ownership 160 New Zealand: GDP per head $44 000, Car ownership 865 Senegal: GDP per head $1600, Car ownership 50 Spain: GDP per head $32 000, Car ownership 650 Switzerland: GDP per head $83 000, Car ownership 720 Uruguay: GDP per head $18 000, Car ownership 300 Ecuador’s government took out loans from China to finance the building of more roads. Constructing these roads created jobs and was expected to affect transport costs in the long run. From 2016 to 2019, Ecuador’s textile industry gained from the improved road network. Even though foreign textile firms were strong competitors, Ecuador’s textile firms expanded production. Wages in the textile industry did not increase much. A very small rise in wages can influence trade union activity and emigration. Some Ecuadorian workers migrate to look for jobs in other countries, especially Italy, Spain and the US. These workers have different skills and do a range of jobs overseas, some of which offer training. Many, though not all, send money back to their families.