Business Activity and Classification: Practice Questions

These are original questions written for Marlbridge, in the style and at the standard of the examination. They are not reproduced past-paper questions — examination boards hold copyright in their own papers. Use these alongside the official past papers available free from your board.

Related: Business Activity and Classification revision notes

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Section A

1. Define the terms need, want and opportunity cost. [3]

2. Explain what is meant by added value and give two ways a business can increase it. [4]

Section B

3. A firm processes cocoa beans into chocolate bars sold in its own shops.

(a) Identify the sector each of these three activities belongs to. [3] (b) Explain one benefit to the firm of operating in all three sectors. [3]

4. Explain the four factors of production, giving an example of each for a bakery. [8]

5. Identify four stakeholders in a supermarket and state one objective of each. [8]

6. Evaluate whether a rising proportion of employment in the tertiary sector is necessarily good for a developing economy. [8]

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Section C

7. A small workshop decides to make only one component of a larger product, buying in everything else it needs.

(a) Define specialisation in this context. [2]

(b) Explain one advantage and one disadvantage of specialisation for this workshop. [4]

8. A country has both privately-owned supermarkets and a government-run hospital.

(a) Distinguish between the private sector and the public sector, giving one example of each. [4]

(b) State one reason a government might choose to keep a service such as healthcare in the public sector rather than privatise it. [2]

9. As economies develop, the balance of activity across the three economic sectors tends to change.

(a) State how the relative importance of the primary and secondary sectors typically changes as an economy develops. [2]

(b) Explain why a country’s sector balance might be used as a rough indicator of its level of development. [3]

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Answers

1. Need — something essential for survival, such as food or shelter [1]. Want — something desired but not essential [1]. Opportunity cost — the benefit of the next best alternative forgone when a choice is made [1].

2. Added value is the difference between the selling price of a product and the cost of the bought-in materials and components used to make it [1] [1]. It can be raised by improving the product’s quality, design or branding so customers will pay more [1], or by reducing input costs through better purchasing or less waste [1].

3. (a) Growing/harvesting cocoa — primary [1]; processing into bars — secondary [1]; selling in shops — tertiary [1]. (b) The firm controls its whole supply chain [1], so it is less dependent on suppliers and less vulnerable to price rises or supply interruptions [1]; it also captures the profit margin at every stage rather than only one, raising overall profitability [1].

4. Land — all natural resources; for a bakery, the site the shop stands on and the wheat it buys [1] [1]. Labour — the human effort, both physical and mental; the bakers and counter staff [1] [1]. Capital — the man-made resources used to produce goods; the ovens, mixers and delivery van [1] [1]. Enterprise — the willingness to take risks and organise the other three factors; the owner who invests savings and decides what to produce [1] [1].

5. Any four, 2 marks each: Customers — want low prices, good quality and wide choice [1] [1]. Employees — want fair pay, job security and good conditions [1] [1]. Shareholders/owners — want profit, dividends and a rising share price [1] [1]. Suppliers — want regular orders and prompt payment [1] [1]. Local community — wants employment and minimal congestion, noise and litter [1] [1]. Government — wants tax revenue and compliance with the law [1] [1].

6. For: a growing tertiary sector usually reflects rising incomes, since people spend a larger share of income on services as they get richer [1]. Service jobs are often higher-skilled and better paid, raising living standards and tax revenue [1]. Services such as banking, education and healthcare also support the productivity of the other sectors [1]. Against: if the shift comes from a collapse in manufacturing rather than growth in services, it may mean lost output and unemployment among workers whose skills do not transfer [1]. Many tertiary jobs in developing economies are low-paid, insecure and in the informal sector, so the headline figure can disguise underemployment [1]. Relying on services can also mean importing more manufactured goods, worsening the balance of payments [1]. Judgement: it depends on why the shift is happening and which kind of service jobs are growing [1]. Growth in high-value services alongside a healthy secondary sector is beneficial; a shift caused by deindustrialisation into low-paid informal work is not [1].

7. (a) Concentrating on producing a narrow range of goods or services rather than trying to make everything itself [2].

(b) Advantage: the workshop’s workers become more skilled and efficient at their specific task, raising output and quality [2]. Disadvantage: it creates interdependence — the workshop relies on outside suppliers for everything it does not make, so it is vulnerable if a supplier fails or raises prices [2].

8. (a) The private sector consists of businesses owned and controlled by individuals, generally operating to make a profit — e.g. a supermarket chain [2]. The public sector consists of organisations owned and controlled by government, often providing services where profit is not the primary objective — e.g. a state hospital [2].

(b) Because the service is considered essential and should be accessible to everyone regardless of ability to pay, rather than rationed by price as a profit-seeking private firm might do [2].

9. (a) The primary sector’s share typically falls, the secondary sector grows before also declining in relative terms, and the tertiary sector’s share rises [2].

(b) Because this shift tends to accompany rising incomes, technology and productivity, the balance between the sectors gives a rough indication of how industrialised and developed an economy is [3].

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Where marks are usually lost

• Defining added value as profit.
• Giving factors of production without a relevant example.
• Listing stakeholders without their objectives.
• Writing a one-sided answer to an “evaluate” question — a judgement is required.
• Describing specialisation without mentioning the resulting interdependence.
• Confusing the public sector with a public good, or the private sector with privatisation.