Model answer

4 a)  In november 2009, the unemployment rate in the district of Handsworth, Birmingham, reached 15% - its highest for over 10 years.

The most likely impact of high local unemployment on a small business would be

A) rising variable costs

B) problems recruiting staff

C) a significant fall in sales of luxury products

D) an increase in profits if the firm imports products

Answer ( C )

b) Explain your answer

High levels of local unemployment means there are more people not working than there are this who are earning an income. Luxury goods are not necessities, therefore as income drops, demand for these items also tend to drop. If there are large amounts of people unemployed, these consumers will not be able to afford these goods as there is a smaller percentage of those working and earning an income. Demand for these unnecessary products will drop significantly meaning less luxury goods will be sold.