CAIE IGCSE Business Studies 6.1 economic issues
Use this economic-issues page to explain policy changes, apply them to demand or costs and judge which effect matters most.
- Syllabus
- 2027–2029
- Course
- Business 0264
Exam points
- Explain how economic growth may increase demand but not benefit every business equally.
- Apply tax, interest-rate or government-spending changes to costs, demand and profit.
- Justify which economic change has the greatest effect on the business case.
Covered syllabus points
6.1. Economic issues question 1
[Maximum number: 6]
Avtar owns a car repair business which operates in the private sector. It is a small business with 2 full-time employees. Avtar wants to find out the best way for a business to increase added value. Avtar's business needs finance for many reasons. Avtar wants to know how an economic recession might affect his business.
Explain two ways an economic recession might affect Avtar's business.
Way 1:
Explanation:
Way 2:
Explanation:
Award 1 mark for identification of each relevant way (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:
- Less/lower demand/sales [k] for car repairs [app] reducing revenue / need to make redundancies [an]
- Less/lower competition (as other businesses fail) [k] which could increase potential customer base [an]
- Widen pool of potential employees [k] if he wants more than 2 employees [app] which may lower recruitment costs [an]
- Reduce number of employees [k] so lower break-even / cash outflows / lower costs [an] so does not need finance [app]
- May lower prices [k] which reduces added value [app] increase demand [an]
- Material costs may be lower [k] which may increase profit margin/lower variable costs [an]
- May delay any expansion plans [k] as not able to afford it [an] so business must remain small [app]
- Hard to survive / may close down / objective may switch to survival [k] so may lose his investment/difficult to attract investment [an]
- May have cash flow problems [k] so need overdraft/loan/cannot repay loans/day-to-day costs [an]
- Customers may delay payment / more bad debts [k]
- More difficult to raise finance/banks may not lend [k]
Other appropriate responses should also 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:
- (Car) repair / garage or examples
- 2 workers
- Full-time (employees)
- Private sector business
- Small business
- Added value
- Short-term/long-term finance/needs finance (for many reasons)
Other appropriate examples can be credited.
Some points such as lower costs can be [k] or [an] but only award once.
Points about repay loans/interest/need to borrow from bank is [an] only.
6.1. Economic issues question 2
[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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