Prepared by D.

El-Hoss 1

Unit 6
External Influences on
Business Activity
Categorised
Past Papers
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All questions are Copyright of Cambridge International Examination Board

 Prepared by D. El-Hoss 2
4

2 The economy of country A is in recession. To deal with the problems caused by the recession, For
the Government has cut interest rates and reduced taxes. These changes have had a big Examiner’s
impact on businesses in country A. The Government has also introduced laws to protect Use

employees at work. Some people have suggested that the Government should give grants
and subsidies to private sector businesses to help them survive.

(a) What is meant by the term ‘recession’?

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(b) Identify two ways in which consumers might be affected by a recession.

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

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

...................................................................................................................................... [2]

(c) Identify and explain two consequences of a fall in interest rates on businesses in
country A.
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Consequence 1: ...............................................................................................................

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

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Consequence 2: ...............................................................................................................

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

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 Prepared by D. El-Hoss 3
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(d) Identify and explain three ways by which employees can be protected at work by For
Government laws. Examiner’s
Use

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

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

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

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

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Way 3: ..............................................................................................................................

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

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(e) Do you think that Governments should give financial support to private sector
businesses to survive in a recession? Justify your answer.

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 Prepared by D. El-Hoss 4
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5 The Government of country Z has decided to invest a large amount of capital in building For
a new road system. Some people don’t like the decision because of the social costs that Examiner’s
it will create. However, most businesses think the decision is a good one. The business Use

sector would also like to see the Government lower taxes on goods and remove some of the
consumer protection and employment laws that it claims increase business costs.

(a) Identify two ways that employees may be protected at work by employment laws.

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

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

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(b) Identify two reasons why Governments put taxes on goods.

Reason 1: ........................................................................................................................

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Reason 2: ........................................................................................................................

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(c) Identify and explain two reasons why many business managers think the decision to
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build more roads is a good one.

Reason 1: ........................................................................................................................

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

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Reason 2: ........................................................................................................................

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

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 Prepared by D. El-Hoss 5
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(d) Identify and explain three social costs that the road building programme might create. For
Examiner’s
Cost 1: ............................................................................................................................. Use

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

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Cost 2: .............................................................................................................................

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

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Cost 3: .............................................................................................................................

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

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(e) The management of many businesses in the private sector think that consumer and
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employment legislation increases business costs. Do you think society would benefit
from a reduction in such laws? Justify your answer.

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 Prepared by D. El-Hoss 6
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5 Extracto is a multinational mining business. It has recently found mineral deposits in For
country X. The Managing Director hopes that the deposits found are large enough for them Examiner’s
to make a good profit. Some pressure groups in country X think that Extracto has only Use

considered the financial benefits of its plans and has ignored the social costs.

(a) What is meant by a ‘financial benefit’?

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(b) Identify two examples of social costs that extraction of minerals might create.

Example 1: .......................................................................................................................

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Example 2: .......................................................................................................................

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(c) Identify and explain two ways in which pressure groups could influence Extracto’s
decisions.
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Way 1: ..............................................................................................................................

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

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

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

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 Prepared by D. El-Hoss 7
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(d) Identify and explain three factors that Extracto should consider before deciding whether For
to begin mining in country X. Examiner’s
Use
Factor 1: ...........................................................................................................................

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

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Factor 2: ...........................................................................................................................

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

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Factor 3: ...........................................................................................................................

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

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(e) Governments often aim to attract multinational companies into their countries. Do you

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think that they should do this? Justify your answer.

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 Prepared by D. El-Hoss 8
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5 Country W has a mixed economy. Herio is a Government economist. He said: ‘Business For
activity in the private sector can lead to external costs, such as pollution. It can also Examiner’s
create external benefits. I believe that businesses that create external benefits should be Use

encouraged and those that create external costs should be closed down.’ Country W has low
economic growth and rising inflation.

(a) What is meant by ‘the private sector’?

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(b) What is meant by ‘rising inflation’?

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(c) Most businesses set objectives. Identify and explain two reasons why having objectives
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may be important for a business.

Reason 1: ........................................................................................................................

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

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Reason 2: ........................................................................................................................

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

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 Prepared by D. El-Hoss 9
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(d) Identify three external benefits and explain how business activity can create each For
benefit. Examiner’s
Use

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

Explanation of how benefit is created: .............................................................................

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

Explanation of how benefit is created: .............................................................................

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Benefit 3: ..........................................................................................................................

Explanation of how benefit is created: .............................................................................

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(e) Herio believes businesses that create external costs should be closed down. Do you
agree with him? Justify your answer.

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 Prepared by D. El-Hoss 10
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5 Greenfield manufactures furniture. The company imports wood and other raw materials For
from several countries. Marcos is the Managing Director of Greenfield. Marcos said that his Examiner’s
company was affected by import quotas and changes in exchange rates. He said: ‘Greenfield Use

has to buy its raw materials from other countries as there are no timber (wood) resources in
our own country.’

(a) What is meant by ‘import quota’?

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(b) Identify two ways that Greenfield’s business might harm the environment.

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

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

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(c) Identify and explain two ways in which changes in exchange rates could cause problems
for Greenfield.
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Way 1: ..............................................................................................................................

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

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

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

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 Prepared by D. El-Hoss 11
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(d) The Government in Greenfield’s country is introducing consumer protection laws. For
Identify and explain three ways in which Greenfield’s business could be affected by Examiner’s
these new laws. Use

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

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

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

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

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Way 3: ..............................................................................................................................

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

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(e) Greenfield’s management is thinking of expanding the business by taking over another
furniture manufacturer. Do you think this is a good idea for Greenfield? Justify your
answer.

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 Prepared by D. El-Hoss 12
8

4 Table 2 gives data about the economy of country C. For

Examiner’s
Use
Table 2

National income
Year per person ($) Inflation (%) Unemployment (%)
2010 650 5 10
2011 640 3 12
2012 600 1.5 18

The economy of country C is in recession. The Government wants to create more jobs by
encouraging more businesses to start up. However some pressure groups are against this
because they think that more businesses will cause more external (social) costs.

(a) What is meant by ‘recession’?

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(b) Identify two possible reasons why national income per person has fallen between 2010
and 2012.
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Reason 1: ........................................................................................................................

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Reason 2: ........................................................................................................................

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(c) Identify and explain two ways that a Government could help new businesses to start up.

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

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

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

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

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 Prepared by D. El-Hoss 13
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(d) Identify and explain three external (social) costs that might be caused by an increase in For
the number of businesses in country C. Examiner’s
Use

Cost 1: .............................................................................................................................

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

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Cost 2: .............................................................................................................................

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

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Cost 3: .............................................................................................................................

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

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(e) Do you think that new start-up businesses can be successful in country C? Justify your
answer.

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 Prepared by D. El-Hoss 14
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5 ANZ is a large multinational company which manufactures aeroplanes. Growth is an For

important objective for the company. ANZ wants to start producing in country P for the first Examiner’s
time. The new factory will operate for 24 hours a day. A pressure group in country P believes Use

that all business activity is bad for the environment. It wants the Government to do more to
control business activity.

(a) What is meant by ‘pressure group’?

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(b) Identify two measures a Government could use to control business activity.

Measure 1: .......................................................................................................................

Measure 2: .................................................................................................................... [2]

(c) Identify and explain two reasons why objectives are important to businesses such as
ANZ.

Reason 1: ........................................................................................................................

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..........................................................................................................................................

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

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Reason 2: ........................................................................................................................

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

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 Prepared by D. El-Hoss 15
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(d) Identify and explain three advantages for country P of ANZ’s decision to open a new For
factory. Examiner’s
Use

Advantage 1: ....................................................................................................................

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

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Advantage 2: ....................................................................................................................

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

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Advantage 3: ....................................................................................................................

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

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(e) Do you think that all business activity is bad for the environment? Justify your answer.

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 Prepared by D. El-Hoss 16
4

2 The economy of country Z is booming. Its Government wants to create more manufacturing jobs
by making it easier for new businesses to start up and build new factories. Recently a Government
minister said: ‘All new businesses will be successful during a boom’. Controls on where new
factories can be built are to be removed. Some pressure groups are against this idea because
they believe that new businesses create external (social) costs.

(a) Identify two features of a ‘boom’.

Feature 1: ..................................................................................................................................

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Feature 2: ..................................................................................................................................

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(b) What is meant by a ‘pressure group’?

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(c) Identify and explain two external (social) costs that might be created by building new factories.
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Cost 1: ......................................................................................................................................

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

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Cost 2: ......................................................................................................................................

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

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 Prepared by D. El-Hoss 17
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(d) Identify and explain two ways that a Government could use to encourage new businesses to
start up (other than removing controls on where factories can be built).

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

...................................................................................................................................................

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

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

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

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(e) ‘All new businesses will be successful during a boom.’ Do you agree? Justify your answer.

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 Prepared by D. El-Hoss 18
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5 The economy of country U is enjoying an economic boom. Many new businesses are being For
set up in country U. There are many sources of external finance available for new businesses. Examiner’s
Use

GGC is a multinational mining company. Its directors have agreed to form a joint venture with
another mining company that is already based in country U. All mine workers are members
of a trade union.

(a) Identify two features of an economic boom.

Feature 1: .........................................................................................................................

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Feature 2: .........................................................................................................................

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(b) Identify two possible advantages to mine workers of being members of a trade union.

Advantage 1: ....................................................................................................................

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Advantage 2: ....................................................................................................................

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(c) Identify and explain two possible advantages to GGC’s management of its mine
workers being members of a trade union.

Advantage 1: ....................................................................................................................

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

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Advantage 2: ....................................................................................................................

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

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 Prepared by D. El-Hoss 19
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(d) Identify and explain two sources of external finance that GGC might use when setting For
up a new mine. Examiner’s
Use

Source 1: .........................................................................................................................

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

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Source 2: .........................................................................................................................

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

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(e) Do you think it is a good idea for GGC to form a joint venture in country U? Justify your
answer.

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 Prepared by D. El-Hoss 20
8

4 The economy of country U is in recession. The Government has cut interest rates to attract
businesses to set up in country U. JWR is a large multinational energy company. JWR may decide
to open a power station in country U. The Government thinks that opening a new power station will
create many external benefits. Some pressure groups do not want companies like JWR operating
in their country.

(a) Identify two features of a recession.

Feature 1: ..................................................................................................................................

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Feature 2: ..................................................................................................................................

...............................................................................................................................................[2]

(b) Identify two effects of a cut in interest rates on businesses like JWR.

Effect 1: .....................................................................................................................................

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Effect 2: .....................................................................................................................................

...............................................................................................................................................[2]

(c) Identify and explain two actions that pressure groups could use to influence JWR’s decision.
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Action 1: ....................................................................................................................................

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

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Action 2: ....................................................................................................................................

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

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 Prepared by D. El-Hoss 21
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(d) Identify and explain two external benefits as a result of opening a new power station in
country U.

External benefit 1: .....................................................................................................................

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

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External benefit 2: .....................................................................................................................

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

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(e) Do you think that the Government of country U should try to attract multinational businesses?
Justify your answer.

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© UCLES 2014 0450/11/M/J/14 [Turn over

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 Prepared by D. El-Hoss 22
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4 Nellis is a public limited company. It specialises in building large luxury houses. Over the past
3 years its profits have increased as the country is experiencing an economic boom. ‘It’s not all
good news – the Government has announced plans to increase interest rates and introduce new
legal controls to protect the environment’ said the Managing Director. He believes these new legal
controls to protect the environment will only make businesses (such as Nellis) less profitable.

(a) What is meant by an ‘economic boom’?

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...............................................................................................................................................[2]

(b) Identify two stages (other than boom) of the business cycle.

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

Stage 2: .................................................................................................................................[2]

(c) Explain how a rise in interest rates might affect Nellis.

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 Prepared by D. El-Hoss 23
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(d) Identify two stakeholder groups. Explain why each group is important to this business.

Stakeholder group 1: .................................................................................................................

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

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Stakeholder group 2: .................................................................................................................

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

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...............................................................................................................................................[6]

(e) The Managing Director believes that the new legal controls to protect the environment will
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only make businesses (such as Nellis) less profitable. Do you agree? Justify your answer.

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 Prepared by D. El-Hoss 24
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4 BRZ sells outdoor clothing, such as waterproof trousers and coats, in country X. It imports most
of its inventory (stock) from low wage countries. ‘Globalisation has changed how we do business.
It offers many opportunities but I have to consider import quotas and exchange rates’ said the
Operations Director. BRZ tries to act in an ethical way with all its stakeholders. The Operations
Director is not sure if it is possible for BRZ to be both ethical and profitable.

(a) What is meant by an ‘import quota’?

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(b) What is meant by ‘inventory (stock)’?

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...............................................................................................................................................[2]

(c) Explain how a depreciation in the value of country X’s currency might affect the profits of
BRZ.
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© UCLES 2015 0450/13/M/J/15

All questions are Copyright of Cambridge International Examination Board

 Prepared by D. El-Hoss 25
11

(d) Identify and explain two opportunities that globalisation might offer BRZ.

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Opportunity 2: ...........................................................................................................................

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(e) Do you think it is possible for companies such as BRZ to be both ethical and profitable?
www.igcsebusiness.co.uk
Justify your answer.

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© UCLES 2015 0450/13/M/J/15

All questions are Copyright of Cambridge International Examination Board