Business Studies · May / June 2021 · Paper 12 · Question 4

0450

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Raul owns a small farm that grows oranges. His farm is based in country Z. Like all primary sector activities, farming creates external costs and external benefits. Raul sells all 600 tonnes of his 4 oranges direct to a drinks manufacturer in country E. The Government of country E plan to introduce either import tariffs or quotas. Raul said: ‘This might help country E’s Government achieve one of its economic objectives but how will it affect companies that export to country E?’

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4(a)[2]
Define ‘primary sector’. Award 2 marks for a full definition. Award 1 mark for a partial definition. Extracts and uses the natural resources of the earth to produce raw materials used by other businesses [2]
OR The sector that generates raw materials which the secondary sector then uses to make a product [2]
Firms whose business activity involves the extraction of raw materials [2]
Partial definition e.g. Involves natural resources [1]
Generate/produce raw materials [1]
2 Do not award examples as this does not answer the question. For 2 marks need to understand extraction of raw materials or they are raw materials / natural resources gathered for use by other businesses.
4(b)[2]
Identify two government economic objectives. Award 1 mark per economic objective. Two from:
Low(er) unemployment / full employment / high(er) level of employment
Economic growth / increase in GDP / improve standards of living
Low inflation / price stability
Improve balance of payments 2 Only award the first two responses given.
4(c)[4]
Outline one external benefit and one external cost that Raul’s business activity might create. Award 1 mark per external benefit/external cost. Points might include: External benefit:
Jobs created [k] on the farm [app]
Pay taxes [k] on the oranges [app]
Other businesses move into area [k]
Trees release oxygen / planting trees improve air quality / trees absorb carbon dioxide [k] External cost:
Loss of space / land use [k] to produce 600 tonnes [app]
Pollution/congestion [k] caused by exporting [app]
Deplete natural resources / use up water [k] Other appropriate responses should also be credited. 4 Note: 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:
(Small) farm / farming
Oranges/fruit
Primary sector
600 tonnes
Export business / manufacturer in another country
(Sell direct to) drinks manufacturer Other appropriate examples in context can still be credited. Do not award manufacturer as [app] on own. Do not award country Z or E as application.
4(d)[6]
Explain two advantages to Raul’s business of selling direct to a manufacturer. Award 1 mark for identification of each relevant advantage (max 2). Award 1 mark for each relevant reference made to this business (max 2). Award 1 mark for each relevant explanation (max 2). Points might include:
No need for intermediaries / middlemen [k] increasing profit margin [an] for the farm [app]
More predictable demand [k] which makes planning easier [an]
Better understand customer needs [k] such as which type of oranges [app] which can help maintain customer loyalty / sales [an]
Can sell in large quantity / does not need to deliver to many businesses [k] as sell all to drinks manufacturer [app] which can reduce distribution / transport cost [an]
Less paperwork / saves time as have to deal with fewer / one customer [k] which reduces administration costs [an]
Less / no need for marketing [k] as does not need to find retailers to buy his oranges [app] which reduces cash outflows [an] Other appropriate responses should also be credited. 6 Note: 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:
(Small) farm
Oranges
Primary sector
600 tonnes
Export business / manufacturer in another country
(Sell direct to) drinks manufacturer
Quotas/tariffs Other appropriate examples in context can still be credited. Do not award country Z or E as application. Do not award manufacturer as [app] as stated in question.
4(e)[6]
Do you think the introduction of import tariffs is likely to have a greater effect than the introduction of import quotas on an exporting business? Justify your answer. Award up to 2 marks for identification of relevant points. Award up to 2 marks for relevant development of points. Award 2 marks for justified decision as to whether the introduction of import tariffs is likely to have greater effect than the introduction of import quotas on an exporting business. Points might include: Tariffs
May lead to an increase in the price of goods / makes goods more expensive [k] which makes the products less competitive [an] leading to fewer sales / less revenue [an]
Business may decide to maintain prices / not pass on price increase to customers [k] reducing profit margin [an] Quotas
Will limit the amount of goods that can be brought into a country [k] which will reduce the supply [an] reducing potential sales / revenue [an]
May have to find new market for remaining products / store leftover inventory [k] increasing storage costs [an] increasing total cost [an] 6 This is a general question so there are no marks for application. To access evaluation marks must have at least identified relevant points for both tariffs and quotas. To gain both evaluation marks, response must clearly relate to an exporting business. Guidance Other appropriate responses should also be credited. Justification might include: Quotas will limit the amount of goods that can be brought into a country [k] which reduces the supply [an]. Whereas tariffs could increase the price of goods [k] leading to lower demand [an]. I think tariffs are likely to have less effect as at least you can still export the amount you want [eval] and customers may still be prepared to pay the extra whereas quotas could reduce or restrict the possibility of any sales. [eval]

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