Explain the effect of the following changes on GJ. • Depreciation in the exchange rate of country Z • Increase in income tax in country Z

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2020). The mark or mark type is shown in brackets.

1. Award 1 mark for each relevant effect (maximum of two):
2. Relevant effects might include:
3. Depreciation in the exchange rate of country Z:
4. This means the value of the currency falls - higher cost of imported goods/higher cost of supplies of imported jewellery – possibly decreased profit
5. GJ may need to increase prices which may discourage sales
6. If GJ export jewellery using their app - export prices are lower after depreciation so easier to sell abroad more overseas customers
7. Increase in income tax in country Z:
8. This decreases consumer disposable income and decreases demand for luxuries which may decrease revenue for GJ
9. Employees may ask for a wage increase due to lower disposable income
10. Award a maximum of 3 additional marks for each explanation one of which must be applied to this context.
11. For example:
12. Depreciation in the exchange rate will result in import prices rising. (1) This will increase the cost of jewellery to GJ (app) which will lead to either higher prices and lower sales (1) or lower gross profit being made if she keeps prices the same. (1)
13. Application could include: Gemma has developed a website, customers can download an app to order jewellery.
14. Note: Gemma sells expensive items of jewellery, rings and bracelets may be considered to be luxury goods.
15. Sound application of knowledge and understanding of relevant business concepts using appropriate terminology.
16. Detailed discussion of two or more changes.
17. Well-justified conclusion.
18. Candidates discussing all three changes in detail, in context and with well-justified conclusion, including why the alternative changes were rejected, should be rewarded with the top marks in the band.
19. Relevant reasons might include:
20. All jewellery packaging must state in which country the product has been made
21. May improve reputation as GJ jewellery supplied by the Beautywise franchise is ethically sourced when it is imported
22. Customers may not bother about which countries jewellery has come from and only be concerned with style and price
23. Country Z has entered a boom phase of the business cycle
24. Increased consumer incomes may lead to higher sales of jewellery as it is a luxury good
25. GJ may take the opportunity to raise prices
26. May buy jewellery from GJ as it is higher quality jewellery and now consumers can afford to buy from GJ therefore increasing sales
27. However, there may be other products consumers want to purchase first – jewellery may be bought at certain times such as weddings or birthdays and this may not be affected by higher incomes
28. A higher percentage of people in country Z use mobile (cell) phones
29. More people will find it easier to check GJ website to see what jewellery it has for sale – easier to compare with competitors – may increase or decrease sales depending on how GJ compares with competitors
30. GJ may start to advertise using social media
31. May be able to expand sales to other countries
32. Overseas sales may result in added delivery costs
33. May have little effect on GJ if consumers still prefer to go into the shop to see and try on jewellery before buying
34. Conclusion Justification might include:
35. The changes to packaging may have the most effect if consumers are concerned about ethical issues and even if they have a higher income from the boom, they will not purchase jewellery from shops that do not sell ethically sourced inventory so GJ should have increased profit.
36. Economic boom is likely to have the biggest effect on profit as consumers will have higher incomes and be more likely to spend some of this on expensive jewellery rather than cheaper jewellery and therefore GJ will have higher revenue and higher profit even after payments to the franchisor. If only some consumers are concerned about ethical issues this change will have less effect on sales and profit.
37. More mobile (cell) phones will allow GJ to increase the target customers for sales from beyond where the shop is located as they have their own mobile phone app. The potential increase in the number of customers and therefore sales may be greater than the increase in disposable income of local residents near to the shops. Therefore, this may provide the greater increase in revenue and possibly profit as costs of selling on the internet are also lower.