CAIE IGCSE Business Studies 6.1.2 effects of government policy
Practise government-policy questions by applying a policy change to the business and judging which effect is strongest overall.
- Syllabus
- 2027–2029
- Course
- Business 0264
Exam points
- Explain lower income tax as higher disposable income that may increase demand.
- Apply higher interest rates to borrowing costs, investment decisions or customer spending.
- Justify whether tax, spending or interest-rate change has the greatest profit effect.
6.1.2—Effects of government policy question 1
[Maximum number: 6]
Alana opened a restaurant in the city centre 5 years ago. The restaurant provides plant-based meals using a range of vegetables. Alana uses primary market research to help identify changes in consumer spending patterns. Market research can also be used to help segment a market. The restaurant has 16 employees. Each employee is paid the legal minimum wage. In 2023 the business made a profit of $ 80000. Alana wants to know how an increase in interest rates might affect her business.
Explain two possible effects of an increase in interest rates on Alana's business.
Effect 1:
Explanation:
Effect 2:
Explanation:
Award 1 mark for identification of each relevant effect (max 2).
Award 1 mark for each relevant reference to this business (max 2).
Award 1 mark for each relevant explanation (max 2).
Points might include:
- Cost of borrowing increases [k] for the restaurant [app] so less likely to invest/expand / increase prices [an]
- Less demand/customers/sales [k] so lower revenue [an] because of changes in consumer spending patterns [app]
- May be more difficult to obtain loans/borrow [k] so may have to rely on other sources of finance [an] such as her $80000 profit [app]
- May delay/reduce level of investment/expansion [k]
- Other appropriate responses should be credited.
To use words from the stem as application, the reference must be appropriate (i.e. make sense) in relation to the point being made.
The following words are likely to be appropriate for this question:
- Restaurant such as menus cooking
- Plant/vegetable-based meals or related words such as food,
- City centre
- 16 employees
- Market segment/segmentation
- 5 years ago
- Consumer spending patterns
- $ 80000 (profit)
Other appropriate examples can be credited.
Some points could be awarded as [k] or [an] but do not award the same point twice.
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