Beruflich Dokumente
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Outcome covered 1
Assessment task instructions
Prior to undertaking this assessment you will be allowed to prepare the equivalent
of 250 words of your own summary notes. You are free to consult your prepared
notes during the assessment, but they must be submitted with your answer script.
This assessment will be completed under controlled conditions, which means that
you will work independently in a supervised environment.
Read the following case study and answer the questions which follow.
Case study
WJE is an independent British manufacturer of quality sports cars based in Dumfries.
The company manufactures lightweight sports cars with powerful engines and has
become the only specialised sports car manufacturer in Scotland, offering a select
range of performance cars, built to a high standard. Most vehicles use the WJE
engine which is highly regarded for speed and reliability. WJE performance sports
cars are constructed from tubular steel frames, cloaked in fibreglass or carbon fibre
bodywork.
The company began its life in 1960 in the old Rubber factory, in Dumfries. The
factory though old was of a suitable size to allow for the production of several cars at
any one time. In 1962 the company launched their highly successful WJE Tiger
which quickly gained a strong reputation for power and reliability. Sales for the Tiger
quickly reached 100 units per year, and in 1967 WJE were selling 145 units per year.
By 1970 sales were beginning to drop and the second model to be known as the
Panther was introduced. The Panther saw the company progress well outside its
Scottish roots with around 60% of the sales being exports to Europe and the US.
This strong reliance on foreign exports has stayed with the company throughout its
existence.
The 80s saw the introduction of harsher safety regulations, which meant major reengineering to the Panther and the rushed introduction of the Lynx.
The Lynx unlike the previous two cars was not an instant success and sales
performance for the company dropped by 40% in year one and a further 20% in
subsequent years. In this period the company was running at a loss, with
redundancies and a freeze on investment.
In 1990 the company launched the Tiger2; this was an attempt to get back to their
core customers with a nostalgic harking back to the original Tiger. This strategy
proved to be a great success and sales figures rose well beyond expectations with
sales demand for 300 units per year.
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December 2011
Throughout the early part of the millennium sales continued to grow and the
company remained profitable.
Today the company is producing 500 Tiger2s and profits are strong, but the company
is concerned that this will be sustained in the long term.
One option available would be to introduce a new model the Puma which will
take five years to develop, or alternatively the Tiger2 could be upgraded at a modest
cost. The company recognises that they do not have the managerial resources,
physical resources or enough money to pursue both options.
Management is also concerned about the impact the present economic climate might
have on their sales, given that the car is a luxury item.
Research carried out into sport car sales shows that the sector is going through
difficult times. Figures show that sales of rival producer company As car the 370R
are down 34% from the previous year. WJEs other competitor company Bs GX7
has not fared much better with sales down 25%.
WJE have commissioned consultants to look into the potential market for their
proposed new car the Puma. The outcome of this research can be seen in the
following demand and supply schedule in Table 1.
Table 1 Potential demand and supply figures for the Puma
Price
20000
800
25000
700
200
30000
500
500
35000
400
600
40000
300
700
45000
200
800
50000
100
900
Looking ahead the company is keen to retain their strong export base; however they
are highly aware of factors which might impact on this, such as exchange rates and
political stability.
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December 2011
Figure 1 shows the demand and supply curves for performance sports cars
similar to those offered by WJE. The quantity demanded is illustrated by line D,
and the quantity firms are prepared to supply is illustrated by line S.
Price
()
S
S2
D1
D2
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December 2011
(b) For each situation in part (a), indicate whether your selected curve
represents an increase or decrease in demand, or an increase or decrease in
supply at every possible price in the market.
Using the demand and supply figures for the Puma contained in Table 1,
construct a suitably labelled demand and supply diagram, and clearly identify the
equilibrium price and quantity.
It has been forecast that, in future, insurance costs for sports cars will rise
sharply. This will have an adverse affect on the demand for WJEs Puma car with
an estimated fall in sales of 100 Puma cars per year at each market price.
(a) Draw and label the new Demand Curve on the diagram that you have
constructed in question 4.
(b) Explain how market forces would act to return the market to a state of
equilibrium at the new equilibrium position.
(c) Identify the new equilibrium price and quantity.
Using the demand figures in Table 1 in the case study, calculate the price
elasticity of demand for a Puma sports car if the price changed from 30,000 to
40,000.
The demand for WJE cars has, to date, proven to be relatively income elastic.
With reference to this statement, explain the concept of income elasticity of
demand.
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December 2011
Assessment task 1
Outcome covered 1
Suggested solution and making an assessment decision
1
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December 2011
A decrease in supply
An increase in demand
An increase in supply
A decrease in demand
Using the demand and supply figures for the Puma contained in Table 1,
construct a suitably labelled demand and supply diagram, and clearly
identify the equilibrium price and quantity.
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December 2011
It has been forecast that in future, insurance costs for sports cars will rise
sharply. This will have an adverse affect on the demand for WJEs Puma
car with an estimated fall in sales of 100 Puma cars per year at each market
price.
(a) Draw and label the new Demand Curve on the diagram that you have
constructed in question 4.
(b) Explain how market forces would act to return the market to a state of
equilibrium at the new equilibrium position.
The fall in demand at each possible market price would lead to an excess of
supply by 100 Puma cars at what had been the old equilibrium position. The
result would be that market forces would exert downward pressure upon the
market price until eventually the market returned to an equilibrium position at
the new equilibrium position.
(c) Identify the new equilibrium price and quantity.
The new equilibrium price is approximately 28500, and the equilibrium
quantity is approximately 450 Puma cars.
Scottish Qualifications Authority
HN Assessment Exemplar/F7J8 34/AEX002 V1
Business: Economic Issues: An Introduction
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December 2011
Using the demand figures in Table 1 in the case study, calculate the price
elasticity of demand for a Puma sports car if the price changed from
30,000 to 40,000.
Elasticity of demand refers to the behaviour of demand for a product against
changing price conditions. Calculate the price elasticity of demand under the
following condition:
Price rises from 30,000 to 40,000
Price elasticity of demand = % change in quantity demanded
% change in price
%change in quantity demanded = (500 - 300/500) x100 = 40%
%change in price = (3000 - 4000/3000) x100 = 33.3%
Price elasticity of demand = 40%/33.3% = 1.2
The demand for WJE cars is said to be elastic as the price elasticity of demand
(PED) is greater than one. This means that the percentage change in demand is
greater than the percentage change in price.
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December 2011
The demand for WJE cars has, to date, proven to be relatively income
elastic. With reference to this statement, explain the concept of income
elasticity of demand.
Candidates should demonstrate a clear understanding of income elasticity of
demand. A numerical example or just providing the formula would not be
sufficient without an explanation. Candidate evidence should include an
explanation that income elasticity of demand measures the extent to which
demand changes when there is a change in income. A satisfactory explanation of
elasticity versus inelastic situations would be likely to assist in clearly explaining
the concept. An excellent response could include differentiation between normal
and inferior goods, and referring to how these can be identified through the
positive or negative elasticity values.
The response should make reference to WJE. Candidates should recognise that
in WJE case it would appear that demand has been adversely affected by the
reduction in income, in other words the situation is likely to be relatively income
elastic.
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December 2011
Assessment task 2
Outcome covered 2
Assessment task instructions
Prior to undertaking this assessment you will be allowed to construct the
equivalent of 250 words of their own summary notes per Outcome. You are free
to consult your prepared notes during the assessment, but they must be
submitted with your answer script.
This assessment will be completed under controlled conditions, which means that
you will work independently in a supervised environment.
Read the following case study and answer the questions which follow.
Case study
WJE is an independent British manufacturer of quality sports cars based in Dumfries.
The company manufactures lightweight sports cars with powerful engines and has
become the only specialised sports car manufacturer in Scotland, offering a select
range of performance cars, built to a high standard. Most vehicles use the WJE
engine which is highly regarded for speed and reliability. WJE performance sports
cars are constructed from tubular steel frames, cloaked in fibreglass or carbon fibre
bodywork.
The company began its life in 1960 in the old Rubber factory, in Dumfries. The
factory though old was of a suitable size to allow for the production of several cars at
any one time. In 1962 the company launched their highly successful WJE Tiger
which quickly gained a strong reputation for power and reliability. Sales for the Tiger
quickly reached 100 units per year, and at its peak in 1967 WJE were selling 145
units per year. By 1970 sales were beginning to drop and the second model to be
known as the Panther was introduced. The Panther saw the company progress well
outside its Scottish roots with around 60% of the sales being exports to Europe and
the US. This strong reliance on foreign exports has stayed with the company
throughout its existence.
The 80s saw the introduction of harsher safety regulations, which meant major
reengineering to the Panther and the rushed introduction of the Lynx.
The Lynx unlike the previous two cars was not an instant success and sales
performance for the company dropped by 40% in year one and a further 20% in
subsequent years. In this period the company was running at a loss, with
redundancies and a freeze on investment.
13
December 2011
In 1990 the company launched the Tiger2; this was an attempt to get back to their
core customers with a nostalgic look back to the old Tiger. This strategy proved to be
a great success and sales figures rose well beyond expectations with sales demand
for 300 units per year.
Throughout the early part of the millennium sales continued to grow and the
company remained profitable.
Today the company is producing 500 Tiger2s and profits are strong, but the
company is concerned that this will not last forever.
One option available would be to introduce a new model which will take five years to
develop or alternatively they could upgrade the Tiger2 at a modest cost. The
company recognises however that they do not have the managerial resources,
physical resources or enough money to pursue both options.
Management is also concerned about the impact the present economic climate might
have on their sales, given that the car is a luxury item.
Research carried out into sport car sales shows that the sector is going through
difficult times. Figures show that rival producer company As car the 370Z, sales were
down 34% from the previous year. WJEs other competitor company Bs RX7 has not
fared much better with sales down 25%.
WJE have commissioned consultants to look into the potential market for their
proposed new car which they propose to call the Puma. The outcome of this
research can be seen in the following demand and supply schedule in Table 1.
Table 1 Potential demand and supply figures for the Puma
Price
20000
800
25000
700
200
30000
500
500
35000
400
600
40000
300
700
45000
200
800
50000
100
900
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December 2011
Looking ahead the company is keen to retain their strong export base; however they
are highly aware of factors which might impact on this, such as exchange rates and
political stability.
In order to get a better understanding of the economic factors affecting their
business, the management have requested that you provide some guidance on the
workings of the economy. Your report should provide information on how the
economy works which will enable the management to understand the likely impact of
economic changes on the business.
You have been requested to report back to the management answering the following
questions.
1
The management want to understand the circular flow of income and the
principles of withdrawals and injections. Construct a circular flow of income
diagram, with labels showing injections and withdrawals.
Explain the multiplier principle in relation to the circular flow of income. In your
answer you should explain how the multiplier can substantially raise the level of
national income.
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December 2011
Assessment task 2
Outcome covered 2
Suggested solution and making an assessment decision
1
The management want to understand the circular flow of income and the
principles of withdrawals and injections. Construct a circular flow of
income diagram, with labels showing injections and withdrawals.
Each candidate is expected to construct a circular flow of income model.
Diagrams may differ in their structure; this will be acceptable provided the
principle elements are accurately portrayed.
Withdrawals/Leakages
Savings S
Taxation T
Imports M
Households
Income Y
Factor Incomes
Factor Services
Labour, land,
Entrepreneurship, Capital
Consumption
Expenditure C
Firms
Injections
Investment I
Government Spending G
Exports X
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December 2011
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December 2011