Cambridge IGCSE · 0450

Business Studies

External influences — Topic 6

Name: ____________________Date: November 12, 2026

1.
A group of people living near a new factory, concerned about noise and traffic, is an example of which stakeholder group? A Shareholders B The local community C Suppliers D Competitors
[1 mark] · no calculator
Worked explanation
1. Choose B, the local community: neighbours experience the factory's noise and traffic without necessarily owning or working for it.
2. They may seek delivery-hour limits while the factory wants convenient access, showing why external stakeholders matter to operational decisions.
Common mistake: Stakeholders are not restricted to employees and investors.
Marking points
- Selects B: the local community, a stakeholder group affected by a business's operations without being directly part of it.
Examiner tip: Stakeholders are any group affected by, or able to affect, a business's activities, not just those who own or work for it.
2.
Explain one way in which the interests of a company's shareholders might conflict with the interests of its employees.
[2 marks] · no calculator
Worked explanation
1. Employees may seek higher pay while shareholders seek larger distributable profit.
2. With output and revenue unchanged, additional wage cost reduces profit available for dividends. Higher pay could also improve productivity, so conflict is possible rather than inevitable in every pay rise.
Common mistake: Do not assume all wage increases reduce long-run shareholder returns.
Marking points
- States that shareholders generally want higher profit and dividends, while employees generally want higher wages and better working conditions.
- Explains that higher wages are a cost that reduces profit, so one group's gain can come at the other's expense.
Examiner tip: Stakeholder conflict arises because groups affected by a business often want different, sometimes opposing, outcomes from the same limited resources.
3.
A government raises indirect tax on sugary drinks. Explain the likely effect of this on a business that produces sugary drinks.
[2 marks] · no calculator
Worked explanation
1. If the producer passes the sugary-drink tax into price, customers face a dearer product and may buy less.
2. Absorbing it instead reduces contribution per unit. The eventual sales and profit effect depends on substitutes and price sensitivity; full pass-through is not automatic.
Common mistake: Statutory tax payment does not determine who bears its full burden.
Marking points
- States that the tax raises the business's costs, or the price customers must pay if the business passes the tax on.
- Explains a likely consequence, such as lower demand for the product, reduced profit margins, or pressure to reformulate the product to reduce sugar.
Examiner tip: An indirect tax raises the cost of producing or selling a good, and its effect on the business depends on how much of that cost can be passed on in price.
4.
A labour-intensive clothing manufacturer currently pays many workers at the existing minimum wage. Explain one likely effect if the government significantly increases the legal minimum above that rate.
[2 marks] · no calculator
Worked explanation
1. Many clothing workers must receive the higher minimum, so the wage bill rises at unchanged hours and staffing.
2. The manufacturer may seek productivity gains or raise prices, but price increases could lose orders to rivals. Labour intensity magnifies exposure only for workers actually affected by the new floor.
Common mistake: Labour-intensive firms already above the floor need not face the same rise.
Marking points
- States that the manufacturer's labour costs rise significantly, since it employs many workers relative to its output.
- Explains a likely response, such as raising prices, reducing staff numbers, or investing in automation to reduce reliance on labour.
Examiner tip: Exposure depends on how many workers are affected, the size of the increase and the wage share of costs. A firm already paying above the new minimum may face little direct change.
5.
Explain one reason why a business might choose to act ethically (for example, by paying fair prices to suppliers) even if this reduces its short-term profit.
[2 marks] · no calculator
Worked explanation
1. Fair supplier prices can support dependable quality and delivery by making the supplier relationship financially sustainable.
2. That may justify a short-run margin sacrifice, or owners may value fair treatment in its own right. Ethical reasons need not be disguised as guaranteed future profit.
Common mistake: Ethical choices need not always generate a commercial payback.
Marking points
- Identifies a valid commercial or principled reason, such as customer loyalty, supply-chain trust, or owners' commitment to fair treatment.
- Develops the chosen reason, for example better reputation supporting repeat purchases, or fair prices supporting suppliers' livelihoods in line with the owner's values. Commercial payback is not compulsory.
Examiner tip: Ethical behaviour often trades a short-term cost for a longer-term reputational and commercial benefit.
6.
A car manufacturer in Country X buys steel produced in Country Y. From Country X's perspective, this steel is: A An export B A tariff C An import D A subsidy
[1 mark] · no calculator
Worked explanation
1. Choose C, an import: Country X buys steel originating in Country Y.
2. From Y's perspective the transaction is an export. The classification depends on the country's viewpoint, not whether the buyer is a manufacturer or retailer.
Common mistake: State the perspective before labelling the trade flow.
Marking points
- Selects C: an import, a good bought from another country and brought into the buyer's own country.
Examiner tip: An import is a good coming into a country from abroad; an export is a good the country sells to the rest of the world.
7.
Explain one benefit to a small domestic business of being able to export its products to other countries.
[2 marks] · no calculator
Worked explanation
1. Exporting adds potential buyers beyond the small firm's domestic customer base.
2. If foreign orders use spare capacity and cover transport and selling costs, extra contribution can raise profit. Reaching more people is an opportunity, not proof that every overseas order is worthwhile.
Common mistake: More foreign revenue can still come with excessive fulfilment costs.
Marking points
- States that exporting gives access to a much larger number of potential customers than the domestic market alone.
- Explains that this can increase total sales and revenue, and reduce dependence on demand conditions in the home market alone.
Examiner tip: International trade widens the market available to a business well beyond its home country's customer base.
8.
A domestic shoe manufacturer faces increasing competition from cheaper imported shoes after the government removes a tariff on imports. Analyse two ways this could affect the domestic manufacturer.
[3 marks] · no calculator
Worked explanation
1. Removing the tariff can lower imported shoes' prices relative to domestic shoes, drawing away price-sensitive buyers and reducing local market share.
2. The domestic manufacturer may then improve design or reduce waste to defend sales, but adaptation costs money and may not succeed. Protection removal creates competitive pressure rather than a certain closure.
Common mistake: Do not assume a tariff change automatically changes product quality.
Marking points
- Explains one relevant effect, for example cheaper imports drawing customers away and reducing market share.
- Explains a second relevant effect, for example pressure to improve quality, differentiate or reduce costs.
- Develops a causal link for either selected effect using the removal of tariff protection. Do not require three distinct effects.
Examiner tip: Removing a tariff makes imports relatively cheaper, so domestic firms without a cost or quality advantage are most exposed to losing sales.
9.
Discuss whether a growing domestic business should expand by selling into overseas markets, given that this exposes it to new competition and costs, as well as new customers.
[4 marks] · no calculator
Worked explanation
1. Overseas markets can widen demand and diversify reliance on home conditions, but research, distribution and adaptation create costs before reliable receipts.
2. I would test one market where spare capacity and a clear product advantage support contribution after those costs. Large-scale expansion is premature if finance or local knowledge is weak; a growing home business need not already be export-ready.
Common mistake: Domestic growth does not establish overseas demand or capacity readiness.
Marking points
- Explains a benefit, such as access to a much larger customer base and reduced dependence on the domestic market alone.
- Explains a cost or risk, such as the expense of researching a new market, adapting products, or unfamiliar regulations and stronger local competitors.
- States a further relevant factor, such as the business's existing capacity, finance, or experience with international trade.
- Reaches a judgement depending on the business's resources, the attractiveness of the overseas market, and its tolerance for risk.
Examiner tip: International expansion trades the security of a familiar domestic market for a larger, but riskier and more costly, opportunity.
10.
Explain one likely effect on a furniture retailer if the economy enters a recession.
[2 marks] · no calculator
Worked explanation
1. Recession can weaken household confidence and income, encouraging buyers to postpone replacing furniture.
2. Fewer discretionary orders reduce retailer revenue and can leave showroom stock tying up cash. This differs from a guaranteed price fall: discounts are a possible response, not the recession's definition.
Common mistake: Lower confidence need not reduce every household's income identically.
Marking points
- Explains that consumer incomes and confidence typically fall during a recession.
- Links this to reduced spending on non-essential items such as furniture, lowering the retailer's sales.
Examiner tip: Furniture is often a discretionary purchase that households delay first when their income or confidence falls.
11.
Explain one way a legal minimum wage could affect a labour-intensive business that currently pays below this new rate.
[2 marks] · no calculator
Worked explanation
1. The new floor requires raises for employees previously below it, increasing cost at unchanged paid hours.
2. Because labour forms a large part of this business's inputs, the increase can squeeze margin unless productivity, prices or other costs adjust. The size needs affected headcount and wage-gap data.
Common mistake: Do not invent a numerical wage-bill rise without hours and pay data.
Marking points
- Explains that the business must raise the pay of any affected employees to meet the new legal minimum.
- Explains that this increases the business's total labour costs, since it is labour-intensive.
Examiner tip: For otherwise comparable firms, a larger wage-cost share can increase exposure, but the impact also depends on how many employees are below the new floor and on productivity and pricing responses.
12.
A taxi company faces new competition from a ride-hailing app that uses smartphone technology to match drivers with passengers. Analyse how this technological change could affect the taxi company.
[2 marks] · no calculator
Worked explanation
1. The app reduces booking effort and waiting uncertainty, potentially shifting passengers away from the taxi company's existing service.
2. An improved booking and tracking service could defend convenience while reliability distinguishes the company. Investment should follow customer needs; copying an app does not automatically match its driver network or cost base.
Common mistake: Technology competition involves service convenience, not only lower fares.
Marking points
- Explains that the app may offer customers a more convenient, faster way to book a ride, attracting customers away from the taxi company.
- States a possible response, such as the taxi company investing in its own technology or competing on price or service quality.
Examiner tip: New technology can change customer expectations quickly; a business that does not adapt risks losing market share to a more convenient competitor.