Evaluate the possible effects on WP if the new economic policy measures are implemented.

Mark scheme

Marking points from the official mark scheme (May/June 2023). The mark or mark type is shown in brackets.

1. Definition and/or explanation of the role of government in relation to economic policy.
2. Definition and/or explanation of the problems: inflation, skills shortages, government borrowing requirement.
3. Definition and/or explanation of policies: pay restrictions, income tax, monetary policy.
4. Possible effects of these policies in relation to the problems and/or their effects on economic variables.
5. Whether to introduce new product range of outdoor play equipment.
6. Seasonal nature of sales, with peak at end of 6 month new policies, introduction period.
7. Existing product ranges are indoor toys.
8. Current market position seems secure.
9. Employees are skilled, have training opportunities, are paid basic wage plus piece rates.
10. Good financial position as seen in extracts from accounting statements.
11. Pay restrictions in the public sector may lead to workers searching for alternative work in the private sector and therefore WP may find it easier to recruit skilled workers AN reducing the cost of recruitment L2 AN
12. WP already offers training to its workers and so will not be affected by the new tax proposed. This could increase WP's competitiveness as other toy manufacturers face increased tax and therefore have less profit for reinvestment. AN
13. An increase in interest rates will increase borrowing costs and therefore make any investment by WP less profitable AN. This could delay any expansion plans that WP has L2AN.
14. Increased income taxes will reduce household disposable income which could lead to a reduction in demand for WP's goods AN and therefore decrease sales and profits. L2 AN
15. Need to wait to find out precisely what the new policies will be before it is possible to assess their impact on WP.
16. Difficult to be certain of the impact and timescale of the effects of the changes, making it likely that spending decisions will be slower or postponed.
17. The policies will reduce consumer spending but to what extent will this affect spending on the products WP supply? Depends, for example, on income elasticity of demand (impact of increase in income tax)
18. Only public sector workers affected by pay restrictions, WP is in the private sector so its costs won't be directly affected.
19. WP already offers training opportunities so new tax on companies not offering training should not impact WP.
20. The time taken for effects of changes to operate is uncertain, making it difficult to make an immediate assessment of the likely impact on WP.