AQA 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, 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: What is Business revision notes

This paper mirrors Paper 1’s real structure: Section A is multiple choice, Section B is short answer, and Sections C and D each offer a choice of one twenty-five-mark essay from two, marked against a levels-based mark scheme rather than discrete points.

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Section A — Multiple Choice

1. Which of the following is the best definition of profit? [1] A. Revenue minus variable costs B. Revenue minus total costs C. Cash inflows minus cash outflows D. Total costs minus fixed costs

2. Which of the following is a social or ethical objective rather than a financial one? [1] A. Increasing market share B. Maximising shareholder value C. Sourcing materials fairly from suppliers D. Reducing average unit costs

3. Which form of business is owned and funded by the state? [1] A. Private limited company B. Public limited company C. Public sector organisation D. Social enterprise

4. Which of these best describes limited liability? [1] A. A business’s debts cannot exceed its assets B. A shareholder’s potential loss is capped at the amount invested C. A business cannot be sued by creditors D. A shareholder cannot sell their shares

5. A sole trader converts to a private limited company. Which of the following is most likely to result? [1] A. Reduced access to finance B. Increased personal liability for the owner C. A requirement to publish annual accounts D. Loss of the ability to make decisions

6. Which stakeholder group is most likely to prioritise low prices and high product quality? [1] A. Shareholders B. Employees C. Customers D. Suppliers

7. Which of the following is an example of an economic external factor affecting a business? [1] A. A new data protection law B. A rise in interest rates C. An ageing population D. A new manufacturing technology

8. Under the SPICED mnemonic, what happens to exports when a currency strengthens? [1] A. Strong pound, imports cheap, exports dear B. Strong pound, imports dear, exports cheap C. Weak pound, imports cheap, exports dear D. Weak pound, imports dear, exports cheap

9. Which of the following best distinguishes a strategic decision from an operational decision? [1] A. Strategic decisions are made more frequently B. Strategic decisions are long-term and made by senior management C. Operational decisions involve larger amounts of capital D. Operational decisions are irreversible

10. Which of the following is a disadvantage of a business becoming a plc? [1] A. It cannot raise capital by selling shares B. It becomes vulnerable to hostile takeover C. Its shares cannot be traded D. Its accounts remain private

11. Which of the following would be classed as a fixed cost for a manufacturing business? [1] A. Raw materials B. Piece-rate wages C. Factory rent D. Delivery fuel

12. What is the main advantage of quantitative data in decision making? [1] A. It always predicts the future accurately B. It is objective and can be compared over time C. It captures staff morale and brand reputation D. It removes the need for management judgement

13. Which of the following is most likely to cause a cash flow problem despite the business being profitable? [1] A. Customers paying late B. Prices being set too high C. Total costs falling D. Revenue exceeding total costs by a large margin

14. Which stakeholder group’s interests are most likely to conflict with a decision to make staff redundant to cut costs? [1] A. Shareholders B. Employees C. Government D. Suppliers

15. Which of the following best describes a business’s mission? [1] A. A short-term numerical target B. The overall purpose or reason the business exists C. A functional objective set by the marketing department D. A legal requirement under company law

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Section B — Short Answer

16. Explain the difference between profit and cash flow. [3]

17. State three common business objectives other than profit. [3]

18. Explain the difference between the private sector and the public sector, giving an example of each and one difference in objectives. [5]

19. Explain how the following affect the choice of legal structure: liability, access to finance, and the desire to retain control. [6]

20. Explain three advantages and two disadvantages of a business becoming a plc. [10]

21. Explain one example of conflict between stakeholder groups in a business, and explain why their interests oppose. [4]

22. Explain one of the specification’s named external environment factors that could affect a business’s decision making. [4]

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Section C

Answer one question from this section.

23. Evaluate the extent to which a business should prioritise the interests of shareholders over those of other stakeholders. [25]

OR

24. Evaluate the extent to which becoming a public limited company would benefit a rapidly growing private limited company. [25]

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Section D

Answer one question from this section.

25. Evaluate whether a business should base its decisions primarily on quantitative data. [25]

OR

26. Evaluate the extent to which changes in the external environment are likely to threaten a small business more than a large one. [25]

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Answers

Section A: 1B 2C 3C 4B 5C 6C 7B 8A 9B 10B 11C 12B 13A 14B 15B [15 — 1 mark each]

16. Profit is revenue minus total costs over a period — an accounting measure [1]. Cash flow is the actual movement of money into and out of the business [1]. A business can be profitable but run out of cash if customers pay late or it holds too much stock, and it can be loss-making yet cash-rich in the short term [1].

17. Any three: survival, growth or increased market share, social or ethical objectives, increasing shareholder value, diversification, improving quality or customer satisfaction [1] [1] [1].

18. The private sector is owned by individuals or shareholders and is run primarily to make a profit, e.g. a supermarket chain [1] [1]. The public sector is owned and funded by the state and is run to provide a service to the population, e.g. the NHS or state schools [1] [1]. The key difference is that public sector organisations are judged on service delivery and value for money rather than profit [1].

19. Liability — a sole trader or partnership has unlimited liability, so an owner who wants to protect personal assets will incorporate [1] [1]. Access to finance — a limited company can issue shares and generally finds it easier to borrow because its published, publicly filed accounts give lenders more information to assess risk, so a capital-intensive business will incorporate [1] [1]. Control — issuing shares dilutes ownership and voting power, so a founder who wants to keep full control may remain a sole trader or a private limited company rather than floating [1] [1].

20. Advantages: it can raise very large amounts of capital by selling shares on the stock exchange, funding major expansion [1] [1]. It gains status and public profile, which helps with credibility among customers, suppliers and lenders [1] [1]. Shares are freely transferable, making the company more attractive to investors because they can exit easily, which lowers its cost of capital [1] [1]. Disadvantages: the original owners lose control — anyone can buy shares, so the company becomes vulnerable to hostile takeover and to pressure from institutional investors [1] [1]. It faces greater regulation and disclosure: accounts are public, so competitors can study them, and the cost of compliance and of the flotation itself is high [1] [1].

21. Any valid conflict, e.g. shareholders want costs cut to raise profit and dividends [1], while employees want higher pay and job security [1]. The interests oppose because cutting costs — through redundancies or pay freezes — directly reduces what is available for wages [1]; judging which should take priority depends on the specific circumstances of the business, such as whether it is fighting for survival or generating strong profits [1].

22. Any one of the six named factors, e.g. interest rates — rising interest rates raise the cost of borrowing for the business [1] and reduce consumer spending as mortgage and loan repayments rise [1], so a business may delay investment decisions until borrowing costs fall [1], particularly if it relies on debt to fund expansion [1].

23–26 (Sections C and D) are marked against a levels-based scheme, not discrete points, matching how the real paper marks its extended essays:

• Level 1 (1–5 marks): isolated or generic points about business ownership, stakeholders, decision making or the external environment, with little or no application to the question set.
• Level 2 (6–10 marks): relevant knowledge is applied to the question, but analysis is one-sided or the chain of reasoning is incomplete.
• Level 3 (11–15 marks): developed analysis of both sides of the argument (for example, the case for and against shareholder priority, or for and against flotation), with clear application throughout.
• Level 4 (16–20 marks): analysis is balanced and consistently applied, and a judgement is offered, but the judgement is asserted rather than justified by the argument developed.
• Level 5 (21–25 marks): a sustained, well-evidenced argument leads to a supported judgement that weighs the factors against each other and explains what the outcome depends on (for example, the size of the capital need, the owners’ attitude to control, or the type of decision being made), rather than simply restating both sides.

Indicative content for 23: for — shareholders bear the financial risk of ownership and have a legal claim on the business’s direction; a business that delivers strong shareholder returns finds it easier to raise further investment. against — ignoring employees, customers, suppliers and the community risks reputational and operational damage that ultimately harms shareholder returns too; long-run profitability usually depends on treating other stakeholders well; some business forms (co-operatives, social enterprises) are deliberately structured to balance stakeholder interests. judgement — the right balance depends on the type of business, its ownership structure and its time horizon: a plc under pressure from institutional investors faces more pressure to prioritise shareholders than a family-owned private company choosing its own balance.

Indicative content for 24: for — flotation can raise substantial capital for expansion beyond what retained profit or borrowing could support, raises status and credibility, and makes shares more liquid. against — flotation dilutes ownership and control, exposes the business to hostile takeover, and brings extra regulation, disclosure and reporting costs. judgement — the decision depends on how much capital the growth plan needs, how much the current owners value control, and whether growth could instead be funded by retained profit or debt.

Indicative content for 25: for — quantitative data is objective, comparable and supports techniques such as investment appraisal, break-even analysis and decision trees. against — data rests on forecasts that can be wrong, cannot capture staff morale, brand reputation or ethics, and describes the past in a way that may not hold in a changing market. judgement — quantitative data should inform rather than determine decisions, and how much weight it deserves depends on the reliability of the data, the time available, and whether the decision is operational (more suited to numbers) or strategic (needing qualitative judgement too).

Indicative content for 26: for small businesses being more exposed — thinner cash and credit reserves, reliance on a single product, market or supplier, and less negotiating power with suppliers, lenders or government. against — large businesses carry more fixed costs and cannot reduce overheads as quickly in a downturn, and their visibility makes them a bigger target for regulation and campaigning pressure. judgement — the real determinant is how diversified and financially resilient the business is, not size alone, though the combination of thin reserves and narrow focus generally leaves small businesses more exposed to a given shock than large ones.

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Where marks are usually lost

• Treating profit and cash flow as the same thing.
• Saying the public sector “has no objectives”.
• Listing plc advantages without the corresponding loss of control.
• Not distinguishing operational from strategic decisions in the evaluation.
• Identifying a stakeholder conflict without explaining why the two groups’ interests oppose.
• Naming an external factor (whether organised by PESTLE or not) without linking it to a specific effect on the business’s decision making.
• In Sections C and D, writing about both essay options instead of choosing one and developing it fully, or describing both sides of the argument without reaching a supported judgement.