CAIE A-Level Business A2 6.1 External Influences on Business Activity Questions

Note

- Only reward advantages

- If more than two advantages are referred to, reward the best two.

1

Responses may include:

AO1 Knowledge and understanding

Definition or explanation of nationalisation: ownership of a business is transferred from private to public (Max K1).

Possible advantages include:

- Government control over the development of a scarce resource.

- Funding for research and production can be guaranteed.

- Profits paid to the government not to shareholders.

- Enables lithium production in country G even if this is marginally profitable or loss making.

- Minimises possibility of foreign takeover.

- Restricts monopoly power to charge high prices.

- Can ensure that the business acts in the public interest e.g. reducing externalities

AO2 Application

Limited application, ${ }^{\text {APP }}$ applies knowledge to LBM once.

Developed application, ${ }^{\text {APP }}$-APP applies knowledge to LBM twice.

Max one ${ }^{\text {APP }}$ for application for the first advantage and max or ${ }^{\text {APP }}$ for application for the second advantage.

- LBM is the only business in country G planning to mine lithium.

- Government concern that demand from industry for lithium in country G will not be met in the long-term.

- Prevent a hostile takeover from a multinational business.

- LBM is currently unprofitable, but revenue is forecast to rise rapidly.

- Possibility of future price rises/profits as demand to supply ratio increases.

- Pollution from production of lithium

- Lithium is an essential raw material used in batteries for electric vehicles, smartphones and other products.

1

AO3 Analysis
Limited analysis AN - candidate shows one link in the chain of analysis.
Developed analysis L2AN - candidate shows two or more links in the chain of analysis.
- By controlling the only source of lithium in Country G, the government can ensure that local industry demand is met,
preventing supply bottlenecks AN and supporting key economic sectors like electric vehicles thus promoting economic
growth L2|AN .
- Nationalisation prevents a hostile takeover by a multinational business, ensuring future forecast rapidly rising revenue
remains within the country AN , which can then be used by the government to fund public services or infrastructure
L2 /AN.
- The government can absorb the initial losses of the currently unprofitable LBM to secure control over a crucial long-
term resource, mitigating uncertainty regarding private sector commitment AN and therefore encouraging investment in
manufacturing in country GL2AN .
- Government control means control of supply to battery producers, maximising country G production capabilit, AN and
therefore reducing reliance on foreign import L2AN
- Profits to the government likely to be higher source of income than tax receipts from profits to shareholders and will
therefore support government spending on its objectiv $\epsilon$ AN .
Accept all valid responses
Exemplar answer demonstrating skills:
The government is currently very concerned that demand from industry in Country G for lithium will not be met in the long-
term. By nationalising LBM, the government can dictate production priorities, ensuring that adequate supply is maintained
domestically, thereby preventing supply bottlenecks and supporting key economic sectors that rely on this raw material.
This ultimately safeguards long-term industrial and economic stability within Country G.
Although LBM is currently unprofitable, losing $2-3 million per year, its revenue is forecast to rise rapidly once mining
begins. By nationalising the business, the government ensures that this potentially high future revenue is retained within the
country's public finances. This retained profit can then be directed towards public services, infrastructure development, or
subsidising local industries, rather than flowing out of Country G to a foreign multinational

Evaluate the impact on CD of the appreciation of country K's exchange rate.

5

Indicative content

Responses may include:

AO1 Knowledge and understanding

- Exchange rate measures the value of one currency in terms of another.

- Appreciation means the value of a currency has increased in terms of another i.e. it buys more of another currency than previously.

- Makes imports cheaper but exports more expensive.

AO2 Application

Limited application, ${ }^{\text {APP }}$ applies knowledge to CD once.

Developed application, ${ }^{\text {APP }}+{ }^{\text {APP }}$ applies knowledge to CD twice.

- Chemicals are currently produced in country K.

- Chemicals could be imported more cheaply.

- Increase in price of CD exports to country C.

- CD's plans for expansion.

- Cost push inflation in country K - including energy costs and raw materials.

- Environmental responsibility of CD.

AO3 Analysis

Limited analysis AN - candidate shows one link in the chain of analysis.

Developed analysis AN L2 AN - candidate shows two or more links in the chain of analysis.

- Appreciation could enable CD to import chemicals at a lower cost and thus reduce cost pressures to increase the selling price AN. This could prevent a reduction in sales in country K L2 AN .

- CD's products will be a higher price in export markets such as country C therefore reducing sales AN.

- Appreciation of country K's currency will reduce the cost of CD's plans to expand operations abroad AN.

- Appreciation could increase the price competition from MNC products produced outside of country K AN , reducing the sales of CD L2AN.

PUBLISHED

5

AO4 Evaluation

Limited evaluation ${ }^{\text {Eval }}$ - limited supported judgement and/or a weak attempt at evaluative comment.

Developed evaluation ${ }^{\text {L2 }}{ }^{\text {Evat }}$ - supported judgement and/or reasonable evaluative comment.

Developed evaluation in context ${ }^{\mathbf{L 3} \mid \text { Eval } \mid}$ - supported judgement in context and/or reasonable evaluative comment in context.

- Depends how much country K's currency appreciates and for how long.

- Depends on PED.

- As sustainability is important, CD may prefer to continue purchasing chemicals domestically rather than importing so appreciation won't bring any direct benefit.

- Depends whether energy costs will be reduced by the appreciation - this could happen if oil and gas are imported to country K to generate electricity.

Accept all valid responses.

\multirow{5{*}{Level & $\begin{array}{c}\text { AO1 Knowledge and } \text { understanding } \mathbf{2} \text { marks }\end{array}$ & $\begin{array}{c}\text { AO2 Application } \mathbf{2} \text { marks }\end{array}$ & $\begin{array}{c}\text { AO3 Analysis } \mathbf{2} \text { marks }\end{array}$ & $\begin{array}{c}\text { AO4 Evaluation } \mathbf{6} \text { marks }\end{array}$

3 & & & & $\begin{array}{l}\mathbf{5 - 6} \text { marks } \text { Developed evaluation in } \text { context } \text { • } \text { A developed } \text { judgement/conclusion } \text { is made in the } \text { business context. } \text { Developed evaluative } \text { comments which } \text { balance some key } \text { arguments in the } \text { business context. }\end{array}$

2 & $\begin{array}{l}\mathbf{2} \text { marks } \text { Developed knowledge } \text { of relevant key term(s) } \text { and/or factor(s) is used } \text { to answer the question. }\end{array}$ & $\begin{array}{l}\mathbf{2} \text { marks } \text { Developed application } \text { of relevant point(s) to the } \text { business context. }\end{array}$ & $\begin{array}{l}\mathbf{2} \text { marks } \text { Developed analysis } \text { that identifies } \text { connections between } \text { causes, impacts and/or } \text { consequences. }\end{array}$ & $\begin{array}{l}\mathbf{3 - 4} \text { marks } \text { Developed evaluation } \boldsymbol{-} \text { A developed } \text { judgement/conclusion } \text { is made. } \text { Developed evaluative } \text { comments which } \text { balance some key } \text { arguments. }\end{array}$

Level

AO1 Knowledge and understanding 2 marks

3

5-6 marks

Developed evaluation in context

- A developed judgement/conclusion is made in the business context.

- Developed evaluative comments which balance some key arguments in the business context.

3-4 marks

Developed evaluation

- A developed judgement/conclusion is made.

- Developed evaluative comments which balance some key arguments.
\end{tabular}}}

5

Indicative content

AO1 Knowledge and understanding

Limited knowledge ${ }^{\mathrm{K}}$ will be demonstrated through knowledge of CSR or knowledge of how CSR could impact GBS's decision to expand into new land.

Developed knowledge K+K will be demonstrated through knowledge of CSR and knowledge of how CSR could impact GBS's decision to expand into new land.

- Knowledge/explanation of CSR, including social or environmental audits.

- Business should take into account impact of decision on society and the environment.

- Stakeholder view vs shareholder view.

- Role of pressure groups.

- Cost of implementing CSR policies.

Benefits to GBS of CSR approach:

- Image

- Retention of employees

- Increased sales

- Adds value

- Possible objectives of GBS

- Use of financial investment appraisal methods in making the decision.

5

AO2 Application

Limited application, ${ }^{\mathrm{APP}}$ applies knowledge to GBS once.

Developed application, ${ }^{\text {APP }}+{ }^{\text {APP }}$ applies knowledge to GBS twice.

- Paying an incentive to local government official is unethical.

- Economy requires increased supply of building materials.

- Need for permission from local government.

- Gordy has objective of expansion.

- Using renewable energy to extract materials.

- Job creation from expansion.

- Protests from villagers about pollution and noise.

- Mo is concerned about the cost of CSR to GBS.

AO3 Analysis

Limited analysis AN - candidate shows one link in the chain of analysis.

Developed analysis ${ }^{\text {L2AN }}$ - candidate shows two or more links in the chain of analysis.

- Failing to take account of CSR when making decisions could result in negative publicity and a loss of reputation AN this could result in losing contracts to supply building materials resulting in a loss of revenue and profit L2 AN.

- Implementing socially responsible actions such as using renewable energy could increase costs and therefore reduce the profitability of the expansion ${ }^{\mathrm{AN}}$.

- Businesses are part of society and therefore have a moral responsibility to consider the impact of their decisions on society AN.

- Making profit is the primary goal of private sector business and therefore it is acceptable to make any decision as long as it is within the law ${ }^{\mathrm{AN}}$ to increase profit on behalf of the owners L2AN.

- Due to the housing shortage society will benefit significantly by GBS producing more building materials ${ }^{\text {AN }}$ therefore GBS does not need to take account of other CSR issues L2AN.

PUBLISHED

5

AO4 Evaluation

Limited evaluation ${ }^{[\text {vwi }]}$ - limited supported judgement and/or a weak attempt at evaluative comment.

Developed evaluation ${ }^{\text {L2 }}{ }^{\text {Fum }}$ - supported judgement and/or reasonable evaluative comment.

Developed evaluation in context ${ }^{\text {L3 }}$ - supported judgement in context and/or reasonable evaluative comment in context.

- Weighing up the financial vs non-financial considerations.

- If expansion is a primary objective this may be more important than profit as long as costs are covered.

- How committed are Gordy and Mo to CSR or to maximising profit? At the moment we are not sure.

- Does practising CSR actually lead to an increase in costs? Short term costs vs long term savings.

- How important is CSR to GBS's customers? Construction businesses are more likely to be interested in minimising their costs rather than purchasing supplies from a business practicing good social responsibility.

- Conclusion as to extent of influence of CSR.

Accept all valid responses.