A Level Business: What is Business — Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions: the section layout follows the 9625 Unit 1 paper, but every question and tariff within it is Marlbridge’s own — examination boards hold copyright in their own papers. Use these alongside the official past papers available free from your board.

Related: What is Business revision notes

How this paper is laid out

This set follows the section layout of the 9625 International AS Unit 1: Business and markets paper (written exam, 1 hour 30 minutes, 80 marks), which has three compulsory sections: Section A multiple choice, short answer and data response questions worth approximately 17 marks; Section B extended response questions worth approximately 27 marks; and Section C extended response questions worth approximately 36 marks. Here the sections are worth exactly 17, 27 and 36 marks. The real Unit 1 paper also examines Topic 2 Marketing; questions 3, 6, 8 and 12 draw on content outside Topic 1 (see the scope note below), and the rest are on Topic 1 What is business?, so use it as topic practice rather than as a full mock. Extra short-answer questions on the external environment follow the answers, outside the paper layout.

If you follow 9725 (first International AS exams May/June 2027), its Unit 1 paper is different: 1 hour 15 minutes, 60 marks, in four sections (A short answer questions, 10 marks; B calculation questions, 10 marks; C extended response questions, 16 marks; D extended response questions, 24 marks).

Scope note: these questions primarily follow 9625. Questions 3, 8 and 12 draw on content the 9625 specification places in second-year (A2) topics (mission statements and the link from mission to objectives sit in 3.3.1 Mission, objectives and strategy; the shareholder/stakeholder debate, economies of scale, overtrading and gearing also sit in section 3.3, not first-year Topic 1), and question 6 draws on price elasticity of demand, which is Topic 2 Marketing content, not Topic 1. They are kept here as useful application practice but should not be treated as first-year Topic 1 exam scope. “SMART” (question 4) and “income elasticity of demand” (question 16) are widely-used teaching devices that explain concepts the specification does require in substance (setting objectives; the effect of changes in incomes) — they are not themselves named, required terms in the OxfordAQA specification, so treat them as explanatory aids rather than must-use vocabulary.

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Section A

Answer all questions.

1. Which of the following is an output of the transformation process? [1] A. Labour B. Capital C. A finished good or service D. Enterprise

2. Which of the following is a tertiary sector business? [1] A. A coal mine B. A car factory C. A bank D. A fishing company

3. Distinguish between a mission statement, a corporate objective and a functional objective. [3]

4. State the elements of SMART objectives. [2]

5. Explain what is meant by “divorce of ownership from control” in a public limited company, and state one way this problem can be reduced. [3]

6. A firm sells a good with inelastic demand. Explain, referring to price elasticity of demand, whether a price rise would increase its total revenue. [3]

7. A market has the following shares: Firm W 32%, Firm X 24%, Firm Y 14%, Firm Z 9%, all other firms 21% combined. Calculate the four-firm concentration ratio and explain one implication of your answer for barriers to entry. [4]

Section A total: 1 + 1 + 3 + 2 + 3 + 3 + 4 = 17 marks.

Section B

Answer all questions.

8. Distinguish between the shareholder and stakeholder approaches to business objectives, and explain one argument for each. [8]

9. Explain three reasons why a business’s objectives might change over time. [6]

10. Explain three roles of an entrepreneur in starting a business, and two reasons why many start-ups fail. [10]

11. Explain one way a change in government policy could affect a business, other than through interest rates. [3]

Section B total: 8 + 6 + 10 + 3 = 27 marks.

Section C

Answer all questions.

12. Evaluate whether pursuing growth is always in the interests of a business’s shareholders. [12]

13. Amira runs a successful café as a sole trader and wants to open two more branches. Evaluate whether she should convert the business into a private limited company. [12]

14. Evaluate the extent to which government support determines how many new businesses start up, and succeed, in a country. [12]

Section C total: 12 + 12 + 12 = 36 marks. Paper total: 17 + 27 + 36 = 80 marks.

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Answers

1. C [1]

2. C [1]

3. A mission statement sets out the business’s overall purpose and values in qualitative terms [1]. A corporate objective is a specific, measurable, medium-term goal for the whole organisation, such as a 10% rise in market share [1]. A functional objective is a departmental target that supports the corporate objective, such as marketing achieving 15% brand awareness growth [1].

4. Specific, Measurable, Achievable, Realistic (or Relevant), Time-bound: all five [2]; three or four correct [1].

5. In a plc, shareholders own the business but directors run it day to day [1], and their objectives can diverge — directors may pursue growth, status or job security, while shareholders want strong returns [1]. This can be reduced through share options or performance-related pay for directors, which realigns directors’ financial interests with shareholder returns [1].

6. Where demand is inelastic, a given percentage rise in price causes a smaller percentage fall in quantity demanded [1], so total revenue (price × quantity) rises [1], since the loss in volume is more than offset by the higher price per unit [1].

7. Four-firm concentration ratio = 32 + 24 + 14 + 9 = 79% [1] [1] (method and answer). A ratio this high indicates a highly concentrated market dominated by a few large firms [1], which are likely to have brand recognition, resources and economies of scale that make it harder for a new firm to enter and compete [1].

8. The shareholder approach holds that the business’s purpose is to maximise returns to its owners, since they bear the risk and own the company [1] [1]. The stakeholder approach holds that the business should balance the interests of all groups affected by it — employees, customers, suppliers, the community — not just the owners [1] [1]. Argument for shareholder: shareholders bear the residual risk and have supplied the capital, so directors have a legal and moral duty to act in their interests; without returns, capital will not be supplied at all [1] [1]. Argument for stakeholder: satisfying employees and customers builds the loyalty and reputation on which long-term profits depend [1], so the two approaches converge over a long enough horizon and ignoring stakeholders creates regulatory and reputational risk [1].

9. Any three, 2 marks each: the stage of the business’s life cycle changes — survival matters most at the start, growth and then profit later [1] [1]; the state of the economy — in a recession a business may switch from growth to cash-flow protection [1] [1]; a change in ownership or leadership brings different priorities, for example a new chief executive focusing on shareholder returns [1] [1]; competitor or technological change may force a shift into new markets or products [1] [1].

10. Roles: the entrepreneur identifies the market opportunity or gap and develops the idea into a viable proposition [1] [1]; they provide or raise the capital and bear the financial risk personally [1] [1]; they organise the other factors of production and make the key decisions on product, price and staffing [1] [1]. Reasons for failure: poor cash flow management — even a profitable business fails if it cannot pay its bills when they fall due, often because customers pay late [1] [1]; inadequate market research — the entrepreneur overestimates demand or misjudges the level of competition, so sales never reach the level the plan assumed [1] [1].

11. For example, a government introducing subsidies or grants for a particular industry [1] reduces that industry’s costs and can make investment or expansion more attractive [1], so a business in the industry might expand capacity, hire more staff or cut its prices to win market share [1]. Any other policy developed in the same way is credited, e.g. tighter environmental regulation that raises compliance costs and may force changes to products or processes.

12–14 (Section C) are marked as whole answers against levels. The level descriptors below are Marlbridge’s own guide, not OxfordAQA’s published mark scheme:

• Level 1 (1–3 marks): relevant knowledge, with little application to the question.
• Level 2 (4–6 marks): knowledge applied to the question, with limited or one-sided analysis.
• Level 3 (7–9 marks): developed analysis of both sides, applied to the context.
• Level 4 (10–12 marks): balanced analysis leading to a supported judgement that explains what the answer depends on.

Indicative content for 12: for growth — growth allows the business to exploit economies of scale, lowering unit costs and raising margins; a larger market share brings greater bargaining power over suppliers and more pricing power; growth generally raises revenue and, if margins hold, absolute profit and the share price; it can also spread risk across more products and markets. Against — growth is often financed by debt or new share issues, which raises gearing or dilutes existing shareholders’ stake and earnings per share; diseconomies of scale — communication and coordination problems, weaker motivation — can raise unit costs and erode the margins growth was meant to improve; rapid growth can cause overtrading, where the business runs out of cash despite rising sales; management attention may be diverted from the profitable core business. Judgement — growth serves shareholders only when the return on the capital employed exceeds its cost; it depends on how the growth is financed, whether the market is large enough, and whether management can run a larger organisation.

Indicative content for 13: for converting — as a sole trader Amira has unlimited liability, so her personal assets are at risk if the expansion fails; a private limited company gives shareholders limited liability; it can raise finance by selling shares to people she chooses and may find it easier to borrow, which helps fund two new branches; the company continues if the owner leaves. Against — selling shares dilutes her ownership and control, and profits must be shared with other shareholders; a company usually faces more legal formalities and costs, such as registration and filing accounts, which also reduces privacy; if she can fund the branches from retained profit or a loan, she may not need outside shareholders. Judgement — conversion is more attractive the larger the investment and the risk involved; it depends on how much finance the branches need, how far Amira values keeping full control, and how risky the expansion is.

Indicative content for 14: for government support mattering most — governments can support start-ups with grants, low-interest loans, tax incentives, advice and training, and simpler rules for registering a business, which lower the cost and risk of starting up and help new businesses survive their first years. Against — the specification also names the business environment in a country and factors influencing the number and type of start-ups, such as the state of the economy and consumer incomes, access to finance from banks, the degree of competition, and the skills, motivation and characteristics of entrepreneurs themselves; many start-ups fail for internal reasons such as poor cash flow management or inadequate market research, which government support cannot remove; support schemes can be costly or poorly targeted. Judgement — government support can raise the number of start-ups and help them survive, but whether they succeed depends more on market conditions and the entrepreneur’s own planning; its importance is greatest where finance is hard to obtain or regulation is burdensome.

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Extra practice (outside the paper layout)

These short-answer questions cover more of the first-year external environment content (3.1.1.3).

15. Explain two factors, other than price, that determine the degree of competition a business faces in its market. [4]

16. During an economic downturn, sales of a discount retailer rise while sales of a luxury retailer fall. Explain this using income elasticity of demand. [4]

17. Explain two effects a rise in interest rates could have on a business. [4]

18. Explain two ways a rise in the cost of inputs could affect a business’s decisions. [4]

15. Any two, 2 marks each: the number of businesses in the market — more competitors generally means each firm has less pricing power and must compete harder on price, quality or service [1] [1]; the extent of barriers to entry — low barriers (little capital needed, no patents, easy access to distribution) allow new entrants, which increases competitive pressure over time, while high barriers protect existing firms’ market position [1] [1].

16. Inferior goods have negative income elasticity of demand — as incomes fall in a downturn, demand for them actually rises, which explains the discount retailer’s growth [1] [1]. Luxury goods have high positive income elasticity — demand is highly sensitive to income, so it falls sharply when incomes fall, explaining the luxury retailer’s decline [1] [1].

17. Any two, 2 marks each: higher borrowing costs, discouraging investment and expansion funded by loans [1] [1]; reduced consumer spending, particularly on income-elastic, expensive items such as durables and housing, since disposable income falls once higher mortgage or loan repayments are met [1] [1]; a business holding variable-rate debt sees its own repayments rise directly, squeezing cash flow [1] [1].

18. Any two, 2 marks each: higher costs of inputs squeeze profit margins unless the business raises its own prices, which it may be unable to do without losing customers to competitors [1] [1]; a business may switch supplier or input, substituting a cheaper (perhaps lower-quality) alternative, which can affect product quality and brand reputation [1] [1].

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Where marks are usually lost

• Confusing a mission statement with a corporate objective.
• Listing stakeholders instead of explaining the two approaches.
• Describing growth’s benefits without addressing how it is financed.
• Not reaching a conditional judgement in a 12-mark evaluation.