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1 RWB manufactures buses.1200 people work in its factory. All employees receive off-the-job training. WB
uses financial rewards to motivate its employees. Last year RWB made a $1.7 million loss. The Managing
Director said: ‘There are many external influences affecting our business, including changes in the level of
unemployment and new legal controls over business activities which affect the environment.’

Do you think a reduction in the level of unemployment always benefits businesses? Justify your answer.

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[Total: 6]
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2 CTF is a public limited company. It manufactures beds using batch production. The Operations Director is
using break-even analysis to calculate the margin of safety for children’s beds. An extract from CTF’s output
data is shown in the table below. The Operations Director wants to know how an increase in inflation might
affect CTF. She knows there are many environmental pressures that a manufacturing business could respond
to.

Extract from CTF’s output data (children’s beds per month)

Break-even output 14 000

Current level of output 18 000

Maximum factory output 25 000

Outline two ways an increase in inflation might affect CTF.

Way 1: ......................................................................................................................................................

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Way 2: ......................................................................................................................................................

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[Total: 4]
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3 Gareth is planning to start a car washing business using government support. He is analysing market research
data to help him make important decisions about his business. Extracts from this data are shown in Figure
A and Figure B. Gareth said: ‘I will need to set business objectives.’ He plans to keep his business small.
Gareth is worried about the possible effects of higher taxes.

Do you have a car? Average price paid for car wash

23% $6.34
77%

Yes No

Figure A Figure B

Outline two ways higher taxes might affect Gareth’s business.

Way 1: ......................................................................................................................................................

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Way 2: ......................................................................................................................................................

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[Total: 4]

4 State two stages of the business cycle.

Stage 1: ....................................................................................................................................................

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Stage 2: ....................................................................................................................................................

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[Total: 2]
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5 Aurelie is a sole trader. She started her small hotel 1 year ago using government support. Aurelie knew it
would be important to build good customer relationships. Aurelie wants to analyse her financial statements
using ratio analysis. An extract is shown in the Table. She is worried about how the Government’s plan to
introduce a new tourist tax of $1 per tourist per night might affect her business.

Extract of Aurelie’s Income statement for 2020 ($)

Revenue 5 600

Cost of sales 1 800

Gross profit X

Expenses 2 400

Profit Y

Explain two ways that the introduction of a new tourist tax might affect Aurelie’s business.

Way 1:.......................................................................................................................................................

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Explanation:.............................................................................................................................................

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Way 2:.......................................................................................................................................................

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Explanation:.............................................................................................................................................

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[Total: 6]
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6 The Government in country Y wants to encourage more secondary sector business activity to help reduce
unemployment. It has announced a reduction in taxes and plans to remove some legal controls over business
activity. Kasper Construction is a multinational company based in country X which wants to expand. It plans
to build a brick-making factory in country Y if it can find a suitable location. Some pressure groups are
against this plan as Kasper Construction has a bad reputation for environmental damage.

Identify and explain two benefits to Kasper Construction of a reduction in taxes.

Benefit 1:..................................................................................................................................................

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Explanation:.............................................................................................................................................

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Benefit 2:..................................................................................................................................................

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Explanation:.............................................................................................................................................

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[Total: 4]
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7 Specialist T-shirts (ST)

Saanvi started ST as a sole trader business 15 years ago in country Z. ST is a successful business. Sales have
grown quickly as ST has a reputation for producing high quality products.

ST buys plain T-shirts and then adds a design onto the T-shirts for business customers. The design could be
a logo, name or a picture provided by the customer. The design makes each batch of T-shirts different for
each customer.

Three digital sewing machines were purchased by Saanvi at a cost of $12 000 each. They allow a design to
be produced on the computer which is transferred straight onto the T-shirt. These machines speed up production
and reduce labour costs.

When ST is very busy it cannot accept all orders. Saanvi has to decide which order to accept.

ST products are high priced and are aimed at niche markets. ST is always looking for ways to increase the
added value of its products. Saanvi is considering producing T-shirts for the mass market instead of niche
markets as she thinks it will allow ST to expand faster. T-shirts that do not have personalised designs could
be produced using cheaper machines that are more efficient. However, Saanvi will need to invest in additional
sewing machines to do this. Her main concern is that the mass market has many established businesses
producing low priced standardised T-shirts.

ST require a new Operations Manager as the previous manager has just left. The previous manager did not
motivate the 30 production workers.

Recently the economy in country Z has moved into a slump. Saanvi is concerned about the effect of this on
ST’s revenue, even though the government is introducing policies to try to reduce unemployment.

Consider how the following two changes might affect ST. Which change is likely to have the most effect on
ST’s revenue? Justify your answer.

• The business cycle in country Z moves into a slump

• The government of country Z focuses on reducing unemployment

The business cycle in country Z moves into a slump: .............................................................................

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The government of country Z focuses on reducing unemployment: .......................................................

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[Total: 12]

8 Define ‘economic growth’.

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[Total: 2]