Fox's Biscuits and Inflation - Worked Answer for Edexcel Unit Assessment 2.4/ 2.5

Below is a worked answer for question 1(a) of our Edexcel Unit Assessment 2.4 & 2.5 - Resource Management and External Influences.

Inflation is a general increase in the level of prices over a period of time.

One way in which rising inflation might affect Fox’s Biscuits is that it could lead to reduced revenue.

Rising inflation could lead to an increase in the price that Fox’s Biscuits pay for their ingredients, for example, flour and sugar, which in turn would lead to an increase in their costs. 

Subsequently, Fox’s Biscuits may need to increase the price of their biscuits, passing the increase onto their customers. However, because biscuits aren’t really seen as a necessity, this could result in a fall in demand, resulting in less revenue.