Analyse the impact on Inolla of two changes in the economic environment in country Q.

Mark scheme

Marking points from the official mark scheme (May/June 2021). The mark or mark type is shown in brackets.

1. [1] Economic environment includes consideration of: Economic growth by changes in real GDP
2. [1] Inflation; a sustained increase in the average price level
3. [1] The unemployment rate; measures the percentage of the labour market without work
4. [1] Interest rates; the cost of borrowing, monetary policy
5. [1] The exchange rate; measures the value of a currency against another currency
6. [1] Impact includes consideration of costs, revenue, profit, decisions taken in response to changes.
7. [1] Unemployment is low (has decreased to 3.8%) and will impact recruitment of labour. This could be linked to the higher labour turnover Inolla is experiencing.
8. [1] Economic growth is forecast to be 5% next three years. Incomes rising, link to premium product of Inolla.
9. [1] An increase in interest rates (due to threat of inflation) may impact investment decisions as cost of borrowing is higher. This could be linked to strategic decisions and investment in ERP.
10. [1] Cost of importing components and batteries from country P may be affected by the rising value of the currency.
11. [1] Pricing of exports affected by appreciation.
12. [1] These changes can impact strategic plan to enter the shared micromobility market: exports to other countries
13. [1] Recruiting workers will be more difficult due to low unemployment. May force Inolla to offer wages above the minimum wage to prevent high labour turnover and to attract employees as output expands
14. [1] Expansion plans require financing. With an increase in interest rates it will be less attractive to borrow money as costs will be higher reducing the return on investment.
15. [1] Economic growth should lead to an increase in demand for electric scooters as Inolla uses premium pricing. Increased demand will lead to higher revenue and potentially higher profits.
16. [1] Appreciation will reduce cost of batteries from country P and thus reduce costs allowing a higher profit margin. Cheaper for Inolla to import components.
17. [1] Appreciation will make it more expensive for importers to purchase scooters from Inolla and therefore reduce export sales.