IGCSE Business: Business and the international economy (Cambridge 0264) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – examination boards hold copyright in their own papers. Use these alongside the official past papers from your board or school.

This set covers section 6.2 (Business and the international economy) of the Cambridge IGCSE Business 0264 syllabus for examination in 2027, 2028 and 2029. Both papers are based on all the subject content. Revise first with the study guide and the revision notes. See also the course hub, the printable checklist and the free diagnostics.

Money figures are in dollars ($). All businesses, people and countries are invented. No exchange rate calculations appear, as they are not assessed.

Questions

1. Identify two reasons for globalisation. [2]

2. Define the term import quota. [2]

3. Belmoor Lamps imports 5,000 lamp bases a year at 24 each. The government adds an import tariff of 20%. Belmoor assembles each lamp with other costs of 10 per lamp and sells it for 45.

(a) Calculate the cost of one lamp base after the tariff. [2] (b) Calculate the extra annual cost of the tariff to Belmoor. [2] (c) Calculate Belmoor’s annual profit before and after the tariff. [3] (d) Explain one way Belmoor could respond to the tariff. [2]

4. Explain one effect of an import quota on a local producer of the same product. [3]

5. Sandrake Fabrics is a small business with 40 staff. It makes cloth for clothing and sells only in its home country. The government has just signed a free trade agreement with three neighbouring countries. Tariffs on cloth between these countries will be removed.

(a) Analyse one opportunity for Sandrake Fabrics from globalisation. [3] (b) Analyse one threat for Sandrake Fabrics from globalisation. [3]

6. Farnell Foods makes jam in its home country. Half of its output is exported. It imports its glass jars. The home currency has depreciated against the currencies of its main markets.

(a) State what is meant by depreciation of an exchange rate. [2] (b) Explain how the depreciation may affect Farnell’s export sales. [3] (c) Explain how it may affect the cost of the glass jars. [2]

7. (a) Define the term multinational company (MNC). [2] (b) Explain two advantages to a business of becoming an MNC. [4]

8. Teakwood Toys, based in a large country, opens a factory in Tarvana. The factory employs 1,200 Tarvana workers and the company buys new machinery there. In its first year the factory makes a profit of 2,000,000. Teakwood sends 75% of this profit to its head office.

(a) Explain two advantages to Tarvana of the factory. [4] (b) Explain two disadvantages to Tarvana of the factory. [4] (c) Calculate the amount of profit that stays in Tarvana. [2]

9. Alverne Bricks expects to make a private profit of 380,000 next year. Its works will discharge waste into a river, and the town council estimates the clean-up will cost 150,000. Smoke is expected to add 90,000 to local health costs. The firm will pay for a new access road that local farmers will also use, worth about 50,000 a year to them.

(a) Define the term external cost. [2] (b) Calculate the total external cost of Alverne’s decision. [1] (c) Calculate the net gain or loss to the town and farmers once external costs and the external benefit are counted against the private profit. [3] (d) Explain why people in the town may object to the works even though it will make a profit. [2]

10. Ordway Coffee imports 200,000 kg of coffee beans a year at 5.00 per kg before tax. The government has just added a 10% import tariff on beans. A local grower offers similar beans at 5.60 per kg, though the flavour is milder. The home currency has also depreciated recently.

(a) Calculate the annual cost of imported beans after the tariff and the annual cost of the local beans, and state the difference. [3] (b) Evaluate whether Ordway Coffee should switch to the local grower. [6]

11. Ketterley Bikes makes bicycles in its home country and exports 20,000 a year to Zemora at 60 each. Zemora charges an import tariff of 18% on the value of the bikes. Ketterley is considering building a factory in Zemora for 1,500,000. This would avoid the tariff and cut labour costs by 90,000 a year. The managers worry about an unfamiliar legal system.

(a) Calculate the annual tariff paid on the bikes. [2] (b) Calculate the total annual saving from the factory and the number of years of savings needed to cover its cost, to one decimal place. [2] (c) Justify whether Ketterley should build the factory. [6]

Answers

1. Improved transport links [1]; technological change including communication [1]. (Accept free trade agreements or newly industrialised countries for either.) [2] Examiner insight: Identify asks only for the reasons, so explanation earns nothing extra.

2. A cap on the number of units of a good [1] that may enter the country in a set time [1]. [2] Examiner insight: A definition gains from both ideas, the limit and the quantity. Saying a quota is “a tax” confuses it with a tariff.

3. (a) Tariff per base = 20% x 24 = 4.80 [1]. New cost = 28.80 [1]. [2] (b) Extra cost = 4.80 x 5,000 [1] = 24,000 [1]. [2] (c) Before: (45 - 24 - 10) x 5,000 = 11 x 5,000 = 55,000 [1]. After: (45 - 28.80 - 10) x 5,000 = 6.20 x 5,000 [1] = 31,000 [1]. [3] (d) It could raise its price [1], although customers may buy cheaper lamps from rivals if it does [1]. (Accept finding a supplier not subject to the tariff, with a consequence.) [2] Examiner insight: Work out the cost for one unit first, then multiply. In (d), “explain” needs the response and a consequence.

4. Fewer imports mean less competition for the local producer [1]. It may sell more or raise its price [1], so its revenue and profit may rise [1]. [3] Examiner insight: Write a chain of cause then effect. Stating that imports fall and stopping there is only the starting point.

5. (a) Sandrake can sell to customers in the three neighbouring countries [1] now that tariffs on its cloth are removed, so prices there are lower and its cloth is easier to sell [1]. More customers means higher sales revenue [1]. [3] (b) Neighbouring cloth makers can sell in Sandrake’s market without tariffs [1]. Some may be larger with lower costs [1], so Sandrake could lose market share unless it cuts prices [1]. [3] Examiner insight: Use facts from the stem, such as the removal of tariffs. A reply that fits any business is less likely to earn application credit.

6. (a) The currency becomes worth less [1] against other currencies, so it buys less foreign currency than before [1]. [2] (b) Farnell’s jam costs less in the currencies of its markets [1], so it becomes more competitive against rival jam [1] and overseas sales may rise [1]. [3] (c) The jars must be paid for in foreign currency [1], which now costs more home currency, so Farnell’s costs rise [1]. [2] Examiner insight: Name the direction of the effect and tie it to price, costs or competitiveness.

7. (a) A business that has operations such as factories or offices in more than one country [1], usually run from a head office in one of them [1]. [2] (b) Larger markets [1], so sales revenue and growth can rise [1]. Lower costs from cheaper labour or materials abroad [1], so profit margins may improve [1]. (Accept avoiding tariffs and quotas, or spreading risk, if developed.) [4] Examiner insight: Two advantages need two different points. Saying “more customers” and “bigger market” is one point repeated.

8. (a) Jobs: 1,200 local workers are employed [1], so household incomes and spending in Tarvana rise [1]. Investment: new machinery is bought in Tarvana [1], which adds to its productive capacity and may help local suppliers [1]. (Accept exports or increased choice.) [4] (b) Repatriation of profits: most of the profit is sent to the head office abroad [1], so Tarvana does not keep that income [1]. Increased competition: local toy makers may lose customers to Teakwood’s cheaper or better-known toys [1], and some may close [1]. (Accept environmental damage or use of natural resources.) [4] (c) Sent abroad = 75% x 2,000,000 = 1,500,000 [1]. Kept = 2,000,000 - 1,500,000 = 500,000 [1]. [2] Examiner insight: Each answer needs a point, a reason and a link to Tarvana.

9. (a) A cost of a business decision [1] that is paid by other people or society, not by the business [1]. [2] (b) 150,000 + 90,000 = 240,000 [1]. [1] (c) 380,000 - 240,000 = 140,000 [1]. 140,000 + 50,000 [1] = 190,000 net gain [1]. [3] (d) The town bears the clean-up and health costs, not the firm [1], so residents get pollution and higher costs while the firm keeps the profit [1]. [2] Examiner insight: Show the subtraction and the addition separately. In (d), the point is who pays, not just that pollution is bad.

10. (a) Tariff = 10% x 5.00 = 0.50 per kg, so imported beans cost 5.50 per kg [1]. Imported total = 5.50 x 200,000 = 1,100,000 [1]. Local total = 5.60 x 200,000 = 1,120,000, so imported beans are 20,000 cheaper [1]. [3] (b) Model answer: For switching: local beans are not subject to the tariff [1] and the tariff could be raised in future [1]. The depreciation also makes imports dearer, so the 1,100,000 for imported beans could rise [1]. Against switching: local beans are milder, which might lose customers who like the current flavour [1]. The saving from staying is only 20,000 on over a million [1]. I recommend that Ordway keeps its imported beans for now but tests the local beans in one blend, because the gap is narrow and the depreciation could reverse it [1]. [6] Examiner insight: A strong evaluation weighs the small gap against the risks and ends with a decision and a condition. A list without a judgement scores less.

11. (a) Value of exports = 20,000 x 60 = 1,200,000 [1]. Tariff = 18% x 1,200,000 = 216,000 [1]. [2] (b) Saving = 216,000 + 90,000 = 306,000 a year [1]. Years = 1,500,000 / 306,000 = 4.9 years [1]. [2] (c) Model answer: I recommend building the factory [1]. The savings of 306,000 a year cover the 1,500,000 cost in about 4.9 years [1], and after that the saving adds to profit [1]. The risks are unfamiliar legal rules and the large cost before any saving [1]. If the firm cannot fund this, or expects the tariff to be removed, exporting is better [1]. Because the payback is under five years and the firm keeps its market, building is justified [1]. [6] Examiner insight: Use the payback figure as evidence, then weigh the legal worry. State the condition under which the other choice would win.

Where marks are usually lost

• Writing that a tariff or quota bans imports.
• Giving the host country’s view when the question asks about the business, or the reverse.
• Calling repatriation of profits a cost to the MNC instead of lost income for the host country.
• Treating all external effects as costs and forgetting external benefits.
• Answering “evaluate” or “justify” questions without a decision or without using the numbers in the stem.

Next steps

• Review the study guide and use the revision notes.
• Return to the course hub and the printable checklist.
• Try all free 10-minute diagnostics.
• Book a free trial class.

Frequently asked questions

Does a tariff or a quota ban imports? No. An import tariff is a tax on imported goods, and an import quota is a limit on the quantity that can be imported. Writing that either one bans imports is a common error.

What are common mistakes on international economy questions in IGCSE Business 0264? Students often give the host country’s view when the question asks about the business, or the reverse, call repatriation of profits a cost to the MNC instead of lost income for the host country, and treat all external effects as costs. Answering “evaluate” or “justify” without a decision or the stem’s numbers also loses marks.

Are exchange rate calculations assessed in IGCSE Business 0264? No. The Cambridge IGCSE Business 0264 syllabus notes that candidates will not be assessed on exchange rate calculations, so questions focus on the effects of appreciation and depreciation on price, costs and competitiveness.

Which syllabus section do these practice questions cover? They cover section 6.2, Business and the international economy: globalisation, tariffs and quotas, multinational companies, external costs and benefits, and exchange rates.

Official syllabus

Aligned to section 6.2 of the Cambridge IGCSE Business 0264 syllabus for examination in 2027, 2028 and 2029, published by Cambridge University Press & Assessment (Cambridge International Education).