A Level Business: What is Business — Revision Notes

Condensed for the final weeks. For the full explanation, use the What is Business study guide.

These notes primarily follow 9625 (the code current students sit), with 9725 differences flagged inline — the two codes disagree on several points, so check which applies to you before revising.

Purpose, mission and objectives

Mission states why the business exists. Corporate objectives flow from it, then functional objectives, then tactics. (Second-year note: under 9625, mission and the links between mission, objectives and strategy are A2 content, 3.3.1 Mission, objectives and strategy. First-year 3.1.1.1 requires setting objectives, strategy and tactics, and the business objectives of profit, growth, survival, cash flow, and personal, social and ethical objectives.)

Objectives must be SMART. “Increase sales” is not an objective; “increase sales by 10% within twelve months” is.

Common objectives: profit maximisation, growth, market share, survival, diversification, and social or environmental goals. They change over time — survival dominates for a start-up, growth and profit once established.

The profit-versus-shareholder-value question: profit maximisation may conflict with long-term shareholder value if it means cutting R&D or damaging reputation. The strongest answers note that the two diverge over different time horizons.

Ownership

9625 (current): sole traders; private limited and public limited companies; private sector and public sector organisations; non-profit organisations; co-operatives. No “partnership” category. 9725 (successor): reverses this — partnerships added, co-operatives dropped. Don’t mix the two lists.

Structure	Liability	Note
Sole trader	Unlimited	Full control, all profit, all risk
Private limited (Ltd)	Limited	Separate legal identity; shares not publicly traded
Public limited (plc)	Limited	Stock-market capital, but public accounts, takeover risk, divorce of ownership from control
Private sector / public sector	Varies	Private sector: owned by individuals/shareholders. Public sector: owned/run by government
Non-profit / social enterprise	Varies	Surplus reinvested rather than distributed
Co-operative (9625 only)	Usually limited, member-owned	Owned and run for members’ mutual benefit
Partnership (9725 only)	Usually unlimited	More capital and expertise, shared profit; limited partnerships are the exception

Unlimited liability means personal assets can be taken to pay business debts — that phrase earns the mark.

Divorce of ownership from control is the plc’s structural problem: shareholders own but directors run, and their objectives can diverge. Directors may pursue growth or status; shareholders want returns. Share options and performance-linked pay exist to realign them.

Stakeholders

Shareholders, employees, customers, suppliers, government, community, lenders.

Conflict is the assessed skill. Name the conflict, explain why the interests oppose, then judge whose interest should take priority in this business:

• Shareholders want cost cuts; employees want pay and security.
• Customers want low prices; shareholders want margin.
• The community wants low pollution; the firm wants low compliance cost.

Stakeholder versus shareholder approaches: shareholder theory says the firm’s duty is to owners; stakeholder theory says sustainable success requires balancing all interests. Note that they often converge in the long run — treating employees and customers well tends to protect shareholder value.

Second-year note (9625 section 3.3.1/3.3.6): stakeholder mapping by power and interest, and the formal shareholder-versus-stakeholder debate above, are second-year (A2) content, not first-year Topic 1. Basic stakeholder identification (who they are, that interests can conflict) is the genuine first-year scope.

Market analysis

market share  = firm sales / total market sales x 100
market growth = change in market size / original size x 100
market size   = volume (units) or value (revenue)

Mass versus niche markets: niche means lower volume but often higher margins, greater customer loyalty and less direct competition — while carrying concentration risk if that segment declines.

Segmentation: demographic, geographic, psychographic, behavioural.

Demand and supply determine price. Demand shifts with income, substitutes, complements, tastes, and marketing. Price elasticity of demand determines whether a price rise increases revenue: inelastic yes, elastic no. That single calculation drives most pricing recommendations.

The external environment

First-year (9625 section 3.1.1.3): market conditions (degree of competition, barriers to entry, market size/growth, concentration ratio) and the effect of changes in incomes, interest rates, exchange rates, costs of inputs, government policies, and competition from abroad.

Second-year (9625 section 3.3.4-3.3.6; A2): the fuller political/legal, economic and social/technological/environmental analysis, including GDP, taxation, inflation, unemployment and protectionism. PESTLE as a named acronym does not appear in 9625 at all (9725 adds a PESTLE reference, but only in its own second-year content) — don’t cite it as first-year Topic 1 vocabulary.

Key economic variables and their effect on business:

Variable	Effect	Year (9625)
Interest rates	Rising rates raise borrowing costs and reduce consumer spending, hitting durables and housing hardest	First-year
Exchange rates	A weak currency helps exporters, hurts importers	First-year
Inflation	Raises costs and creates uncertainty; wage demands follow	Second-year
Unemployment	High unemployment lowers wage pressure but also lowers demand	Second-year
GDP growth	Drives demand, especially for income-elastic goods	Second-year

The memory hook for exchange rates: SPICED — Strong currency, Imports Cheap, Exports Dear (this is currency-neutral; do not tie it to one specific currency, since this is an internationally-taught, internationally-examined qualification).

Income elasticity determines who suffers in a downturn. Luxury goods have high positive YED, so demand falls sharply in a recession; inferior goods have negative YED, so demand can actually rise. This is why discount retailers often grow during downturns — a point worth having ready.

Decision-making

The 9625/9725 requirement is decision trees, with expected value and net gain calculations, plus ethical influences on decisions. (“Scientific versus intuitive decision-making” is a different board’s domestic terminology and does not appear in this specification — don’t revise it as OxfordAQA content.)

Expected value = (probability x outcome) summed across all branches
Net gain        = expected value - cost of the decision/investment

Under 9625, decision trees are first-year content (3.1.1.1). Under 9725, this content moves to second-year/A2 (3.4.3) — check which code applies before treating this as first-year scope.

Answering the questions

The specification defines four assessment objectives, not three: knowledge, application, analysis and evaluation. At International AS, knowledge (AO1) and application (AO2) are the joint-largest weighting bands (each approximately 27.5–32.5% of AS marks), with analysis (AO3) around 20–25% and evaluation (AO4) around 17.5–22.5%.

• Knowledge — accurately define and use the correct business terms, concepts and models.
• Application — use the case study’s actual figures, names and market.
• Analysis — build a chain: because X, therefore Y, which means Z for this firm.
• Evaluation — weigh both sides, judge, and state what the judgement depends on: firm size, market conditions, time frame, financial position.

Exam traps

• Generic answers with no reference to the case study.
• Objectives that are not SMART.
• Saying limited liability means limited debts.
• Confusing public limited company with public sector.
• Listing stakeholders rather than explaining conflict.
• Getting exchange-rate effects backwards.
• A conclusion with no criterion.

Self-test

1. What does SMART stand for, and why does it matter?
2. Explain the divorce of ownership from control and one way firms address it.
3. Explain one stakeholder conflict in full.
4. A currency strengthens. What happens to exporters and importers?
5. Why can discount retailers grow during a recession?

Answers: 1. Specific, Measurable, Achievable, Relevant, Time-bound; without these an objective cannot be monitored or judged to have been met. 2. Shareholders own a plc but directors run it, so objectives can diverge; share options and performance-related pay are used to align directors’ interests with shareholders’. 3. For example, shareholders want costs cut to increase returns while employees want higher pay and job security — the same funds cannot do both. 4. Exporters are hurt because their goods become dearer abroad; importers benefit because imports become cheaper (SPICED). 5. Their goods are inferior goods with negative income elasticity, so as incomes fall demand for them rises.