Commerce and Production: 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: Commerce and Production revision notes

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Section A

1. Define commerce and state its two branches. [3]

2. Name four aids to trade and state the function of each. [8]

Section B

3. Explain the three types of production, giving an example of each and explaining how they are interdependent. [6]

4. Explain the chain of distribution from producer to consumer.

(a) Describe the role of the wholesaler, giving three functions. [6] (b) Explain two reasons why some producers now sell directly to consumers. [4]

5. Distinguish between home trade and foreign trade, and between visible and invisible trade, giving an example of each. [6]

6. Explain three ways in which improved transport and communication have changed commerce. [6]

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Section C

7. Distinguish between needs and wants, and explain the link between this distinction and the idea of opportunity cost. [3]

8. Explain what is meant by entrepot trade, and give one reason a country might engage in it. [3]

9. Tertiary production is divided into commercial services and direct personal services. Distinguish between them, giving one example of each. [4]

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Answers

1. Commerce is trade together with the services that assist trade — the distribution of goods and services from producer to consumer [1]. Its two branches are trade (buying and selling) [1] and aids to trade (the supporting services) [1].

2. Any four, 2 marks each: Transport — moves goods from where they are produced to where they are needed, creating place utility [1] [1]. Warehousing — stores goods until they are required, evening out supply and demand over time [1] [1]. Banking — provides the means of payment, credit and finance for trade [1] [1]. Insurance — transfers the risk of loss or damage from the trader to the insurer, allowing trade to take place [1] [1]. Advertising — informs and persuades customers that goods are available [1] [1]. Communication — allows orders, prices and information to be exchanged quickly [1] [1].

3. Primary — the extraction of natural resources, e.g. mining or farming [1]. Secondary — the manufacture and processing of raw materials into finished goods, e.g. a car factory [1]. Tertiary — the provision of services, e.g. banking or retailing [1]. They are interdependent because secondary industry cannot operate without the raw materials from primary industry [1]; both rely on tertiary services such as transport, finance and insurance to function and to reach their markets [1]; and tertiary industry depends on the income generated by the other two sectors for its customers [1].

4. (a) Any three, 2 marks each: breaking bulk — buys in large quantities from the producer and sells in smaller quantities the retailer can handle [1] [1]; storage — holds stock so the producer can manufacture continuously and the retailer need not hold large inventories [1] [1]; bearing risk — takes ownership of the goods, absorbing the risk of price changes, deterioration and unsold stock [1] [1]; providing credit and advice to retailers and information about demand back to the producer [1] [1]. (b) Cutting out the wholesaler’s margin lowers the price to the consumer or raises the producer’s profit [1] [1]; the internet allows a producer to reach the whole market directly and to control the brand experience and customer data [1] [1]. (Also accept: large supermarkets buy in bulk directly, so no wholesaler is needed.)

5. Home trade takes place within a country’s borders, e.g. a shop in Karachi buying from a factory in Lahore [1] [1]. Foreign trade crosses national borders, comprising imports and exports [1]. Visible trade is trade in physical goods, e.g. exporting cotton [1] [1]. Invisible trade is trade in services, e.g. earning fees from tourism, shipping or insurance [1].

6. Any three, 2 marks each: containerisation and air freight have cut transport costs and times, making it economic to trade over long distances and to source components globally [1] [1]. The internet allows producers to sell directly to consumers worldwide, shortening the chain of distribution and opening markets to small firms [1] [1]. Instant communication allows just-in-time stock control, so firms hold less inventory and reduce warehousing costs [1] [1]. Electronic banking has made international payment fast and secure, reducing the risk of trading with distant customers [1] [1].

7. Needs are essentials for survival, e.g. food, shelter and clothing [1]; wants are everything beyond that, and are effectively unlimited [1]. Because resources are finite while wants are not, choices must be made, and every choice carries an opportunity cost — the next best alternative given up [1].

8. Entrepot trade is where goods are imported into a country and then re-exported, often after storage or minor processing, without being consumed domestically [1] [1]. A country may do this to profit from a strategically located port, earning income from storage, processing and re-export services even though the goods are never sold to its own consumers [1].

9. Commercial services are aids to trade that help industry and commerce function, e.g. banking, insurance or transport [1] [1]. Direct personal services serve people directly, e.g. teachers, doctors or hairdressers [1] [1].

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Where marks are usually lost

• Defining commerce as “buying and selling” only, omitting aids to trade.
• Giving examples of the sectors without explaining interdependence.
• Listing wholesaler functions without explaining the benefit to producer or retailer.
• Confusing invisible trade with illegal or unrecorded trade.
• Defining entrepot trade as simply “importing and exporting” — the mark requires stating that the goods are not consumed domestically.
• Classing all services as one tertiary group, missing the commercial-services / direct-personal-services split.