A Level Business: Business and Its Environment — Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs — examination boards hold copyright in their own papers. Use these alongside the official past papers available free from your board.

Related: Business and Its Environment revision notes

This paper covers AS Topic 1 (1.1–1.5) only. The external environment (for example PEST analysis) and business strategy (SWOT analysis, the Ansoff matrix, Porter’s five forces) are A Level Topic 6 content and are not assessed at AS.

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Section A

1. Identify two ways of measuring the size of a business. [2]

2. Explain the difference between a sole trader and a partnership. [3]

Section B

3. Explain two benefits and two costs to a business of adopting a corporate social responsibility policy. [8]

4. A manufacturer decides to close one of its factories to cut costs. Explain how two stakeholder groups are likely to react to this decision, and how conflict might arise from their different aims. [6]

5. Evaluate whether a rapidly growing business should expand through organic growth or through merger and takeover. [12]

6. Identify three qualities or skills that make entrepreneurial success more likely, and explain why each matters. [6]

7. Explain how a business’s objectives typically change as it develops from a start-up to an established firm. [6]

8. Define the term mission statement. [2]

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Answers

1. Any two: number of employees, annual turnover, capital employed, market share [1] [1].

2. A sole trader is owned and run by one person with unlimited liability and full control [1]. A partnership is owned by two or more people who share capital, expertise and decision-making [1], but who also share the profit and risk disagreements between partners [1].

3. Benefits: CSR enhances brand reputation and differentiates the business, attracting customers who care about how products are made and supporting a price premium [1] [1]. It improves recruitment, motivation and retention of staff, cutting the cost of turnover and raising productivity [1] [1]. Costs: CSR raises direct costs — fair-trade sourcing, higher wages, recycled packaging — which either reduces margin or raises price [1] [1]. It constrains decision-making: the business may be unable to relocate to a cheaper supplier or close a loss-making site without reputational damage, reducing flexibility [1] [1].

4. Any two stakeholder groups, 2 marks each (1 for the impact of the decision on the group, 1 for its likely reaction): employees at the factory lose their jobs or face relocation [1], so they may protest, strike through a trade union, or lose motivation across the rest of the business [1]; shareholders gain from lower costs and higher expected profit [1], so they are likely to support the closure [1]; the local community loses income and spending in the area [1], so it may campaign against the closure or damage the firm’s local reputation [1]. Conflict, 2 marks: the shareholders’ aim of higher profit and dividends is opposed to the employees’ aim of job security [1], so the business must decide whose aim takes priority, and how it remains accountable to the group that loses, for example through redundancy support or retraining [1].

5. For organic growth: it lets the business retain full control and ownership [1]; it builds on existing capabilities and culture, so it carries lower risk than buying an unfamiliar business [1]; it can be funded from retained profit, avoiding new debt or share issues [1]. For external growth (merger/takeover): it is much faster, giving immediate access to new markets, brands, technology or capacity that would take years to build organically [1] [1]; it can remove a competitor from the market at the same time as growing [1]. Against external growth: it is expensive, often requiring new debt or share issues that can dilute control [1]; integration risk is high, since clashes of culture and management mean expected savings often fail to materialise [1] [1]. Judgement: the right method depends on how quickly the business needs to grow, how much finance and control it is willing to risk, and whether a suitable target is available to acquire [1] — a business needing rapid access to a new market with capital to spare may benefit from external growth, while one with more time and a strong existing capability may grow organically at lower risk [1] [1].

6. Any three, 2 marks each: opportunity recognition — spotting a gap in the market or an unmet need before others do is the starting point for any viable business idea [1] [1]; the ability to secure and manage finance — without adequate funding and disciplined cash-flow control, a business cannot survive its early, most vulnerable period [1] [1]; resilience in the face of setbacks — early rejection and failure are common, and the entrepreneur must adapt and continue rather than give up at the first difficulty [1] [1]; the capacity to plan and adapt the business idea as circumstances change — markets shift, and an idea that cannot evolve with them is unlikely to survive [1] [1].

7. A new business typically prioritises survival, since cash flow and building an initial customer base are the most immediate threats to its continuation [1] [1]. An established, profitable business can instead prioritise growth, profit maximisation, or increasing market share, since survival is no longer the immediate concern [1] [1]. Some businesses, particularly those under strong stakeholder pressure or led by founders with strong values, adopt objectives centred on social or environmental responsibility, even at some cost to short-term profit [1] [1].

8. A formal statement of a business’s purpose, values and aims [1], communicated to give direction to internal and external stakeholders (it is usually qualitative, not a numerical target) [1].

Examiner insight (June 2025): a few weak answers described a marketing slogan instead of a formal statement of the business’s values, purpose and goals. Try the real question next: Cambridge International AS & A Level Business 9609, June 2025, Paper 12, Question 1.

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Where marks are usually lost

• Giving only the costs or only the benefits of CSR.
• Listing stakeholder groups without explaining how the decision affects each one and why their different aims lead to conflict.
• Writing a one-sided answer to an “evaluate” question — a judgement is required.
• Naming an entrepreneurial quality without explaining why it matters to that specific business idea.