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Assess the extent to which movements in exchange rates might influence the holiday choices of UK consumers. - Edexcel - A-Level Business - Question 2 - 2019 - Paper 3
Question 2
Assess the extent to which movements in exchange rates might influence the holiday choices of UK consumers.
Worked Solution & Example Answer:Assess the extent to which movements in exchange rates might influence the holiday choices of UK consumers. - Edexcel - A-Level Business - Question 2 - 2019 - Paper 3
Step 1
Exchange rates are the price of one currency in terms of another
Answer
Exchange rates play a crucial role in the cost of holidays for consumers. If the pound (£) depreciates against the euro (€) and the US dollar ($), this increases the effective price of holidays priced in those currencies. For example, a holiday in Spain becomes more expensive if measured in pounds, which may discourage UK consumers from booking such holidays. Over the period from 2014 to 2017, the pound has depreciated against the dollar, and consequently, there has been an increase in the rates for holidays abroad, rising from 1.2 to 1.7 since 2013.
Step 2
Income elasticity of demand for holidays
Answer
Despite exchange rates affecting holiday prices, the demand for holidays may not decrease linearly. Increased consumer incomes may have compensated for a weaker pound, leading consumers to still opt for overseas holidays despite higher costs. This suggests that while exchange rates matter, other factors also heavily influence holiday choices.
Step 3
Changes in technology and consumer behavior
Answer
Technological advancements have made it easier for consumers to budget and book holidays online. This accessibility could lead to a greater willingness to travel overseas, even when the pound is weaker, as convenience may outweigh a slight increase in cost. Additionally, changing job markets may lead to increased demand for holidays in the UK, as job uncertainty may push consumers to seek closer and possibly cheaper domestic experiences.
Step 4
Overall assessment
Answer
In conclusion, movements in exchange rates do influence holiday choices of UK consumers, but the extent is moderated by factors such as income levels, technological changes, and shifting consumer preferences. Therefore, while exchange rates are significant, they are not the sole determinant of holiday decisions.