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9609 · 6.1.2

Economic — practice questions

Practice and worked examples for 9609 Economic. Short previews only — attempt the full question in MarkScheme against the official scheme.

Worked example 1

Country in recession: GDP −2%, unemployment rising. A mid-range fashion retailer analyses two impacts and one response.

Show solution outline

Impact 1 — Demand: Consumers cut discretionary spending — fewer new outfits; shift to value/discount rivals.

Impact 2 — Costs: May still face sticky rent and wages while revenue falls — profit squeeze.

Response: Reposition mix toward basics and promotions (3.3); reduce inventory orders; negotiate rent holidays; delay store expansion (10.3 investment).

Worked example 2

BritBikes Ltd, a UK company, has a contract to sell bikes to a US retailer for $500,000. It also imports components from Germany costing €200,000.

Initial exchange rates: £1 = $1.25 and £1 = €1.15. The pound then depreciates. New exchange rates: £1 = $1.20 and £1 = €1.10.

Calculate the total impact on BritBikes' profit from these two transactions in Pound Sterling (£).

Show solution outline

Step 1: Calculate the impact on export revenue. The revenue is fixed in US Dollars ($500,000). We need to convert this to Pounds (£) at both rates.

  • Initial Revenue in £: 500,000/1.25=£400,000500,000 / 1.25 = £400,000
  • New Revenue in £: 500,000/1.20=£416,667500,000 / 1.20 = £416,667
  • Change in Revenue: £416,667 - £400,000 = +£16,667 (Increase in revenue)

Step 2: Calculate the impact on import costs. The cost is fixed in Euros (€200,000). We need to convert this to Pounds (£) at both rates.

  • Initial Cost in £: €200,000 / 1.15 = £173,913
  • New Cost in £: €200,000 / 1.10 = £181,818
  • Change in Cost: £181,818 - £173,913 = +£7,905 (Increase in costs)

Step 3: Calculate the net impact on profit. Profit is Revenue - Costs. The change in profit is the change in revenue minus the change in costs.

  • Change in Profit: (+£16,667) - (+£7,905)
  • Net Impact on Profit: +£8,762

Conclusion: The depreciation of the pound (WIDEC) results in a net increase in profit of £8,762 for BritBikes from these transactions. The benefit from higher export revenue (when priced in foreign currency) outweighs the negative impact of higher import costs.

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