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.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2015). The mark or mark type is shown in brackets.

1. [2] Clear Understanding – strong rise in level of economic activity OR period of time when GDP rising rapidly.
2. [1] Some Understanding – e.g. economy doing well (high GDP or rise in level of economic activity or GDP rising) or identifies features of an economic boom
3. Features might include: low unemployment, rising inflation, resource shortages, high levels of disposable income, high levels of consumer/business confidence.
4. Knowledge [2 × 1] – award 1 mark for each other stage
5. Points either:
6. Slump/trough
7. Growth/recovery/expansion
8. Recession/depression/contraction
9. Knowledge [2] – award up to 2 marks for relevant points [max 2]
10. Application [2] – award up to 2 marks for each relevant explanation in context of Nellis
11. Relevant points might include:
12. Cost of borrowing increases [k] so less incentive to buy building land [app] for houses [app]
13. Lower sales/consumers reduce spending [k] as cannot afford luxury/non-essential items [app]
14. Increased cost of any current loan/overdraft [k] so profits do not increase [app]
15. Higher interest rates attract more savings [k]
16. Application could include: luxury, (large) houses, economic boom, (increased) profits, building land
17. Note: Candidates can offer extended development of one point or two separate points to achieve both App marks
18. Knowledge [2 × 1] – identification of relevant group [max 2]
19. Application [2 × 1] – award 1 mark for each explanation in context of Nellis
20. Analysis [2 × 1] - award 1 mark for each relevant explanation
21. Relevant points might include:
22. Owner/Shareholders [k] may choose to sell their shares [app] reducing the market value of the company [an]
23. Employees OR Managers [k] as they carry out/control the day-to-day operations [an]
24. Customers [k] buy what the business make [an] allowing Nellis to increase profit [app]
25. Banks/lenders [k] provide an important source of finance [an] which allows the business to take advantage of the economic boom [app]
26. Government [k] as their new legal controls on environment [app] might restrict/influence way they operate [an]
27. Local community [k] might object to building [app] delaying the start/stop the work [an]
28. Pressure groups [k]
29. Application could include: luxury, (large) houses, economic boom, legal controls/environment, public limited company/sell shares, (increasing) profits, interest rates.
30. Knowledge [1] – award 1 mark for identification of relevant issue(s) [max 1]
31. Application [1] – award 1 mark if relevant reference made to this type of business (construction)
32. Analysis [2] – award up to 2 marks for relevant development of point(s)
33. Evaluation [2] – justified decision as to whether new environmental laws will make businesses like Nellis less profitable
34. Relevant points might include:
35. Might have to buy pollution permits/pay fines [k] which will increase costs [an] which could increase prices [an] so less houses sold [app]
36. Might lead to higher standards [k] this could lead to better reputation [an] which could increase sales [an]
37. Might make planning applications more difficult [k] to buy building land [app] which may delay the work [an]
38. Might have to buy new machinery/introduce new technique [k] for construction [app]
39. Application could include: luxury, (large) houses, economic boom, building land, construction.
40. Note: Candidate's final decision can be either for or against the statement
41. Do not accept profit/profitable as application or analysis as this is stated in the question.