How Firms respond to Strong Pound

Examine Three ways manufactures may respond to a strong pound

1. Increase productivity and Efficiency.

To remain competitive, firms need to try and cut costs so that they do not have to increase prices in other countries. However, they may already by as efficient as they can. Also productivity improvements may take a long time to occur.

2. Do Nothing.

Demand may be inelastic for UK exporters. Also the strong pound may only be a temporary effect. Therefore, there is no need to change anything. However, if the pound remains strong for a long time it will cause problems in the future. Also demand for goods often becomes more elastic over time.

3. Diversify into producing different goods.

UK exporters could start producing goods which are more inelastic (higher value, less competition). Or they could concentrate more on domestic markets.However, domestic markets may be limited and diversification will require costly intervention.

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