Refer to lines 69–70. Analyse how the two changes in the economic environment will impact CQ.

Mark scheme

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

1. [K1] Depreciation of exchange rate a fall in the value of one currency in terms of another.
2. [K1] Inflation – an increase in the general price level.
3. [K1] Taxation includes income and corporation tax and indirect taxes such as VAT. Changing levels of taxation is an element of fiscal policy.
4. [K] Decreased demand for goods (increase in taxation).
5. [K] Higher costs (inflation and/or depreciation of exchange rate).
6. [K] Increased export earnings (depreciation of the exchange rate).
7. [APP] Linking ER depreciation to imports of bamboo from the US or exports of shoes to the US.
8. [APP] CQ objective is to increase sales to US.
9. [APP] Linking taxation to demand for shoes and/or CQ's premium prices.
10. [APP] Linking inflation to wage demands of workers at factory in country P.
11. [APP] Linking taxation to CQ's proposed investment in sustainability.
12. [L2 AN] Depreciation will make imports of bamboo from the US more expensive therefore increasing CQ costs and increasing price or reducing gross profit margin.
13. [L2 AN] Depreciation will reduce price of CQ shoes to US importers and therefore result in an increase in sales volume (and value) helping to meet CQ objective of growth.
14. [L2 AN] Inflation may result in an increase in wage demands from workers at the factory in country P increasing costs of CQ and therefore reducing profit margins.
15. [L2 AN] An increase in income tax will reduce consumers' disposable income leading to a decrease in demand for goods and therefore a decrease in sales revenue resulting in a decrease in profits.
16. [AN] Unique nature of CQ's product may mean that changes in price and income may have only a limited impact on sales and profit.
17. [L2 AN] Increase in corporation tax will reduce retained profit and could therefore result in delay in CQ's plans such as the investment in sustainability limiting future profit of the company.