IGCSE Business: Legal controls (Cambridge 0264) – Revision Notes

These notes condense section 3.4, Legal controls, of the Cambridge IGCSE Business 0264 syllabus for examination in 2027, 2028 and 2029. The single syllabus point is 3.4.1, Legal controls related to marketing. For full explanations and worked examples, read the study guide first. When you are ready, test yourself with the practice questions. The course hub and the printable checklist track progress, and the free diagnostics show gaps. All businesses and figures below are invented, and laws are described in general terms because they differ between countries.

The three things to know

1. The purpose of legal controls: to protect customers, especially from misleading promotion and faulty goods.
2. What counts as misleading promotion and faulty goods.
3. The effects of legal controls on marketing, good and bad.

Key definitions

Term	Meaning
Legal control	A rule set by the government that a business must follow, with penalties if it does not
Promotion	The part of the marketing mix used to inform and persuade customers
Misleading promotion	Advertising or other promotion that leaves customers with a false or unclear picture and influences their decision to buy
Faulty goods	Goods that do not work properly, are damaged, or are not as described
Remedy	What puts a faulty purchase right: repair, replacement or refund
Sales revenue	Price × quantity sold

Purpose of legal controls

Why a government controls marketing:

• The business knows more about the product than the customer does.
• Customers need to trust what they are told.
• Customers need a way to put things right if goods are faulty.
• Honest businesses should not lose out to dishonest rivals.

Say it in one line: legal controls exist to protect customers and to keep competition fair.

Misleading promotion

Ways promotion can mislead:

Type	Short example
False claim about the product	Calling a coat “waterproof” when it is not
Exaggerated performance	Claiming results that testing does not support
Misleading price	A “was” price that was never really charged
Hidden conditions	An offer whose conditions are buried
Misleading image or pack	A picture that suggests more than the customer gets
Unfair comparison	“Cheaper than all rivals” without checking

Must-know distinction: opinion versus checkable fact. “Our tea is delicious” is opinion. “Contains 30% less sugar” is a claim that can be checked, so it must be true.

Faulty goods

Customers can generally expect that goods will:

• be of reasonable quality
• do what they are sold to do
• match the description given

If not, the business is responsible for putting it right: repair, replacement or refund. Keep the answer general and do not name laws.

Who in the business is affected? Production (quality control), purchasing (reliable suppliers), customer service (complaints) and marketing (promises made).

Effects of legal controls on marketing

Effect	Type	Part of the marketing mix
Adverts must be checked and claims supported	Cost / limit	Promotion
Strong headlines dropped if they cannot be proved	Limit	Promotion
Testing, labelling and repackaging	Cost	Product
Honest “was/now” prices, clear extra charges	Limit	Price
Systems and staff for returns and complaints	Cost	Product, place
Learning rules in each new country	Cost / limit	All
Fines, withdrawal of advert or product, bad publicity	Risk	All
Greater customer trust and repeat purchases	Benefit	All
Fairer competition	Benefit	All
Better quality control	Benefit	Product

Method in steps: a two-sided effect answer

1. State the effect in one clear sentence.
2. Say why it happens, using the purpose of the control.
3. Link to a part of the marketing mix or to the business in the case study.
4. Give the consequence: more cost, less freedom, more trust, or lower risk.
5. For “evaluate” or “justify”, weigh the costs against the benefits and then decide which matters more for this business.

Small calculations to remember

Percentage discount = (old price − new price) ÷ old price × 100. Cost of faulty goods = number faulty × cost per fault. Number faulty = total sold × fault rate. Cost as a share of sales revenue = cost ÷ sales revenue × 100.

Worked reminders:

• A kettle was £80 and is now £60. Discount = (80 − 60) ÷ 80 × 100 = 25%.
• A firm sells 16,000 items and 2.5% are faulty. Faulty items = 16,000 × 0.025 = 400.
• A recall of 1,500 items costs £12 each. Cost = 1,500 × £12 = £18,000.

Show the formula, the substitution and the units. A bare number can lose method credit if it is wrong, so working is a safety net.

Short worked scenario

Aldrey Bakery (invented) prints “100% British flour” on its bags, but half of the flour is imported. A rival reports it. The bakery must withdraw the bags and reprint.

• The claim was a checkable fact, so it was misleading promotion.
• Costs: reprinting, withdrawn stock, possible penalty and lost trust.
• Marketing effect: product labels now need checking before each print run.
• Judgement: the cost of checking labels is small compared with the cost of withdrawal and damage to reputation.

Second scenario: faulty goods

Tavistoke Audio (invented) sells 4,000 speakers at £60. A wiring fault affects 5% of them.

• Faulty speakers = 4,000 × 0.05 = 200.
• Replacement at £22 each = 200 × £22 = £4,400.
• Refund at £60 each would be 200 × £60 = £12,000.
• Sales revenue = 4,000 × £60 = £240,000, so the refund option is 5.0% of it (12,000 ÷ 240,000 × 100).

Points to make: the business is responsible for the fault; replacement is cheaper than refund here; the long-term answer is better quality control and supplier checks; an open and quick response protects the brand.

How this topic appears in the papers

The syllabus describes Paper 1 as short answer and data response, and Paper 2 as a case study. On short questions expect to define, state or explain. On case-study questions expect to apply the ideas to the business given, and to weigh costs against benefits. The balance of the two papers is the same for all candidates.

Must-know distinctions

Pair	Difference
Misleading promotion vs faulty goods	One is about what the business says. The other is about what the customer receives
Opinion vs checkable claim	Opinion is allowed. A checkable claim must be true
Repair vs replacement vs refund	Fix the item, give another item, or give the money back
Cost to the business vs benefit to the business	Rules add cost and limits, but also trust and fairness
Legal control vs ethical choice	Law is compulsory. Ethics goes beyond what the law requires

Quick self-test

1. State two purposes of legal controls on marketing.
2. Define misleading promotion.
3. Give two examples of misleading promotion.
4. What is meant by faulty goods?
5. Name two things a customer can generally expect when goods are faulty.
6. A coat was £120 and is now £90. Calculate the percentage discount.
7. A business sells 8,000 items and 3% are faulty. How many are faulty?
8. Each faulty item costs £15 to replace. Using your answer to question 7, calculate the total cost.
9. Explain one way legal controls can raise a business’s costs.
10. Explain one way legal controls can benefit a business.
11. Is “the friendliest cafe in town” likely to be misleading promotion? Give a reason.
12. State one effect of legal controls on the price element of the marketing mix.

Answers

1. To protect customers from misleading promotion; to protect customers from faulty goods; to keep competition fair (any two).
2. Promotion that gives customers a false or unclear picture so that they are persuaded to buy.
3. A “was” price never really charged; a false claim about a material; a hidden condition on an offer; exaggerated performance (any two).
4. Goods that do not work properly, are damaged, or are not as described.
5. Repair, replacement or refund (any two).
6. (120 − 90) ÷ 120 × 100 = 25%.
7. 8,000 × 0.03 = 240 items.
8. 240 × £15 = £3,600.
9. For example, advertising must be checked and claims supported, which takes staff time and may need a legal adviser, so promotion costs more.
10. For example, honest promotion and fair treatment of faulty goods build customer trust, which leads to repeat purchases and recommendations.
11. Probably not. It is an opinion that customers understand as enthusiasm, not a fact that can be checked.
12. Price claims must be honest, so a business cannot show a high “was” price that it never charged, and must make extra charges clear.

Where marks are usually lost

• Writing about customers only and forgetting the effects on the business.
• Giving a list of laws instead of explaining the purpose and effect.
• Not applying the answer to the business in the case study.
• Treating every strong claim as illegal, instead of separating opinion from checkable fact.
• Mixing up faulty goods with a customer who simply changed their mind.
• Giving only costs or only benefits in an “evaluate” or “justify” answer, with no judgement.
• Forgetting units, or skipping the formula in a percentage question.
• Using vague words such as “bad for business” without saying what the cost or loss is.
• Not linking the effect to a part of the marketing mix when the question asks about marketing.

Frequently asked questions

Why do governments control marketing? Legal controls exist to protect customers, because the business knows more about the product than the customer does. They also help keep competition fair, so honest businesses do not lose out to dishonest rivals.

What can customers expect when they buy goods? Customers can generally expect goods to be of reasonable quality, do what they are sold to do and match the description given. If not, the business is responsible for putting it right through repair, replacement or refund.

How do you calculate a percentage discount? Percentage discount is the old price minus the new price, divided by the old price, times 100. For example, a kettle cut from £80 to £60 has a 25% discount.

How do you calculate the cost of faulty goods? Find the number faulty by multiplying total sold by the fault rate, then multiply by the cost per fault, such as the cost of a replacement or refund.

Official syllabus

These notes follow the Cambridge IGCSE Business 0264 syllabus for examination in 2027, 2028 and 2029, published by Cambridge University Press & Assessment (Cambridge International), section 3.4 Legal controls.