IGCSE Business: Economic issues (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 6.1 (Economic issues) 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.

All money is in dollars. All businesses and people are invented. Show your working on every calculation.

Questions

1. Define the term inflation. [2]

2. Identify two stages of the business cycle in which unemployment is likely to be high. [2]

3. Dalrymple Print makes a profit before tax of 84,000 dollars. Profit is taxed at 25%.

(a) Calculate the profit after tax. [2] (b) The tax rate rises to 30%. Calculate the fall in profit after tax. [3]

4. Ms Khatri earns 2,600 dollars a month before income tax. The income tax rate rises from 20% to 25%.

(a) Calculate the fall in her monthly income after tax. [2] (b) Explain one way this change could affect a furniture retailer. [2]

5. Zafira Textiles has a bank loan of 150,000 dollars. The interest rate rises from 6% to 9%.

(a) Calculate the increase in the annual interest the business pays. [3] (b) State one other way the rise could affect the business. [1]

6. Explain how a fall in unemployment could affect a restaurant. [4]

7. The government announces a cut in spending on new roads. Marlowe Hall Aggregates sells stone and sand to road builders. Analyse how the cut could affect the business. [4]

8. A basket of goods cost 300 dollars last year and 318 dollars this year. A bakery spends 47,000 dollars a year on flour, and flour prices rise by 6%.

(a) Calculate the rate of inflation shown by the basket. [2] (b) Calculate the extra cost of flour and explain what happens to the bakery’s profit if it does not change its prices. [2]

9. Sundara Preserves sells premium jams. Quarterly sales (thousands of dollars) were: quarter 1, 212; quarter 2, 198; quarter 3, 181; quarter 4, 165. Over the same year unemployment in the country rose from 5% to 9%, and shoppers moved to cheaper brands.

(a) Calculate the percentage fall in sales from quarter 1 to quarter 4. [2] (b) Identify the stage of the business cycle most likely shown. [1] (c) The owner is considering either a price cut on the premium range or launching a cheaper range. Recommend which is better, giving reasons. [5]

10. Cobbleway Cafe makes a profit before interest and tax of 72,000 dollars. It has a loan of 90,000 dollars. Tax is charged on profit after interest. At present the interest rate is 5% and the tax on profit is 20%. Both then change: the interest rate rises to 8% and the tax on profit rises to 24%.

(a) Calculate the profit after interest and tax before the changes. [3] (b) Calculate the profit after interest and tax after the changes. [3] (c) Calculate the fall in profit after interest and tax, in dollars and as a percentage of the original figure (to 1 decimal place). [2]

11. Wolvercote Joinery makes fitted kitchens, which many customers buy using loans. Unemployment is falling and the economy is growing. The owner plans to borrow 180,000 dollars to open a second workshop and forecasts extra annual profit before interest of 26,000 dollars. The interest rate is 4% but is expected to rise to 7% and perhaps 10%.

(a) Calculate the extra annual profit after interest at each of the three rates. [3] (b) Evaluate whether the owner should take the loan now. [7]

Answers

1. Inflation is a general rise in the level of prices [1] over time (often shown as a percentage a year) [1]. [2] Examiner insight: A definition earns credit when it says prices in general are rising; a rise in the price of one product is not inflation, so avoid that wording.

2. Recession [1] and slump [1]. [2] Examiner insight: Two named stages are asked for, so give two; adding growth or boom alongside them would contradict the answer.

3. (a) Tax = 84,000 × 0.25 = 21,000 [1]. Profit after tax = 84,000 − 21,000 = 63,000 dollars [1]. [2] (b) New tax = 84,000 × 0.30 = 25,200 [1]. New profit after tax = 84,000 − 25,200 = 58,800 [1]. Fall = 63,000 − 58,800 = 4,200 dollars [1]. [3] Examiner insight: Showing the tax figure before the final answer makes your method visible to the reader and lets you check each step as you go.

4. (a) Income after tax at 20% = 2,600 × 0.80 = 2,080 [1]. At 25% = 2,600 × 0.75 = 1,950, so the fall is 130 dollars a month [1]. [2] (b) Disposable income falls, so customers have less to spend [1]. Furniture is a large, delayable purchase, so the retailer may see fewer sales and lower revenue [1]. [2] Examiner insight: The second mark depends on linking the change to the product; saying only that “people have less money” stays general.

5. (a) Interest at 6% = 150,000 × 0.06 = 9,000 [1]. Interest at 9% = 150,000 × 0.09 = 13,500 [1]. Increase = 4,500 dollars a year [1]. [3] (b) Customers who borrow face dearer credit and may cut spending, so demand for textiles could fall [1]. [1] Examiner insight: A one-mark “state” needs one clear effect only; extra effects add nothing, but a vague answer such as “it affects sales” does not say how.

6. Fewer people are out of work, so more have incomes to spend [1], which raises demand and sales for the restaurant [1]. Other employers are also hiring, so the restaurant finds it harder to recruit staff [1] and may have to raise pay, which increases its costs [1]. [4] Examiner insight: A good explanation has a cause and a consequence in each point; applying one point to demand and one to labour costs covers two different effects.

7. Less government spending on roads means fewer road projects [1], so road builders buy less stone and sand and the business loses orders [1]. Falling sales reduce its revenue and profit [1]. It may have to cut output or jobs, or find customers in other sectors [1]. [4] Examiner insight: Analysis rewards a chain of linked steps, and the stem names the product, so tie each step to stone and sand rather than to businesses in general.

8. (a) Rise = 318 − 300 = 18 [1]. Inflation = 18 / 300 × 100 = 6% [1]. [2] (b) Extra cost = 47,000 × 0.06 = 2,820 dollars [1]. If prices stay the same, costs rise but revenue does not, so profit falls by 2,820 [1]. [2] Examiner insight: The explanation needs the direction and size of the change in profit; “profit goes down” without the 2,820 figure is less complete when a number is available.

9. (a) Fall = 212 − 165 = 47 [1]. Percentage fall = 47 / 212 × 100 = 22.2% [1]. [2] (b) Recession (sales and output falling while unemployment rises) [1]. [1] (c) Price cut: it may win back some sales quickly [1], but it lowers the profit on every jar and may damage the premium image [1]. Cheaper range: it reaches shoppers who have moved to cheaper brands while the premium brand keeps its price [1], but it costs money to develop and may take sales from the premium range [1]. Recommendation: launch the cheaper range, because unemployment is rising and shoppers are trading down, so a lasting cheaper option is better than lowering the price of every jar [1]. [5] Examiner insight: A recommendation is stronger when it names a deciding fact from the case, here rising unemployment and trading down, instead of just stating a preference.

10. (a) Interest = 90,000 × 0.05 = 4,500, so profit after interest = 72,000 − 4,500 = 67,500 [1]. Tax = 67,500 × 0.20 = 13,500 [1]. Profit after interest and tax = 54,000 dollars [1]. [3] (b) Interest = 90,000 × 0.08 = 7,200, so profit after interest = 64,800 [1]. Tax = 64,800 × 0.24 = 15,552 [1]. Profit after interest and tax = 49,248 dollars [1]. [3] (c) Fall = 54,000 − 49,248 = 4,752 dollars [1]. As a percentage of the original: 4,752 / 54,000 × 100 = 8.8% [1]. [2] Examiner insight: In a multi-stage calculation, set out each line (interest, then profit, then tax); the percentage must be taken from the original figure, not the new one.

11. (a) At 4%: interest = 7,200, extra profit after interest = 26,000 − 7,200 = 18,800 dollars [1]. At 7%: interest = 12,600, extra profit = 13,400 dollars [1]. At 10%: interest = 18,000, extra profit = 8,000 dollars [1]. [3] (b) For taking the loan: the economy is growing and unemployment is falling, so incomes and demand for kitchens are likely to be rising [1]. The forecast gain stays positive even at 10%, at 8,000 dollars a year [1]. Taking the loan now also lets the firm expand while demand is strong [1]. Against: rising interest rates cut the gain from 18,800 to 8,000, a fall of more than half [1], and the same rises make credit dearer for customers who buy kitchens on loans, so the 26,000 forecast may not be reached [1]. A loan also commits the firm to repayments even if growth slows [1]. Judgement: the owner should take the loan, but borrow less or fix part of the cost where possible, because the gain is positive at every rate shown while the demand risk is real [1]. [7] Examiner insight: Evaluation needs both sides weighed against the figures in the case and a clear final decision; a list of pros and cons with no judgement reads as description.

Where marks are usually lost

• Defining inflation as one price rising rather than prices in general rising.
• Naming a stage of the cycle without describing what it means for the business in the stem.
• Calculating a tax change from the wrong figure, such as using the tax amount where profit before tax is needed.
• Taking a percentage change from the new figure instead of the original.
• Mixing up the direction of an interest rate rise, forgetting that it raises both the firm’s costs and its customers’ costs.
• Making a general point about “less money” instead of linking it to the product in the case.
• Recommending an action without a reason taken from the case data.
• Stopping at one-sided points on an evaluation question, with no final judgement.

Next steps

• Re-read the study guide for any question you lost marks on.
• Use the revision notes to rehearse the stages, tax methods and interest rate chains.
• Return to the course hub and tick off topics on the printable checklist.
• Try all the free 10-minute diagnostics.
• Book a free trial class at /trial/.

Frequently asked questions

What is inflation? Inflation is a general rise in prices over time, usually shown as a percentage. Defining it as one price rising, rather than prices in general, is a common error.

What are common mistakes on economic issues questions in IGCSE Business 0264? Students often name a stage of the business cycle without saying what it means for the business in the stem, calculate a tax change from the wrong figure, take a percentage change from the new figure instead of the original, and forget that higher interest rates affect customers as well as the firm’s loan costs. Ending an evaluation with no judgement also loses marks.

Which syllabus section covers economic issues? Economic issues is section 6.1 of the Cambridge IGCSE Business 0264 syllabus. It covers the business cycle, employment, inflation, economic growth, and government use of taxes, spending and interest rates.

How should you recommend a response to an economic change? Give a response that fits the business in the case, with a reason taken from its data, such as whether it can pass higher costs on to customers or whether its customers are price sensitive.

Official syllabus

This set follows the Cambridge IGCSE Business 0264 syllabus for examination in 2027, 2028 and 2029, published by Cambridge University Press & Assessment (Cambridge International), section 6.1 Economic issues.