A report for the national trade department examines a small company called PPS Games. The business designs board games in a studio and sells 40% of its outp...
Question 1 Report
A report for the national trade department examines a small company called PPS Games. The business designs board games in a studio and sells 40% of its output to shops in other countries. The government is considering reducing import tariffs on card, ink and electronic timers used by PPS Games. At the same time, it is considering export support to help small firms attend overseas trade fairs. The government wants economic growth and a stronger balance of payments, but it must decide how best to use limited public funds.
(a) Define a tariff. [1]
(b) State two ways export support could help PPS Games. [2]
(c) Analyse how lower import tariffs on materials could affect PPS Games' profit. [2]
(d) Assess whether export support is a better policy option than lower import tariffs for PPS Games. [3]
Answer Details
(a) A tariff is a tax on imported goods. [1]
(b) Export support could help PPS Games pay for attending overseas trade fairs. It could also raise awareness among overseas customers or help the business find foreign distributors and new markets. Any two valid ways are credited. [2]
(c) Lower import tariffs reduce the cost of imported card, ink and electronic timers. PPS Games could lower prices to compete more strongly, or keep prices unchanged and increase its profit margin. [2]
(d) Export support may directly increase overseas sales and foreign-currency earnings by helping PPS Games reach customers abroad. Lower import tariffs reduce production costs, benefiting games sold both abroad and in the domestic market. Export support is the better policy if lack of overseas awareness is the main barrier; lower tariffs are better if expensive materials are the main constraint on profit. [3]
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