IGCSE Business: Business activity and Economic sectors (Cambridge 0264) – 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 from your board or school.

This set covers sections 1.1 (Business activity) and 1.2 (Economic sectors) of the Cambridge IGCSE Business 0264 syllabus for examination in 2027, 2028 and 2029. For theory, read the study guide or the revision notes. The course home is the Cambridge IGCSE Business hub, and the printable checklist tracks what you have covered. To find weak spots first, try the free diagnostics.

Questions

1. Identify the factor of production shown in each of the following. (a) Three hectares of rented farmland. (b) The programmers employed by a software firm. (c) A packing machine in a factory. (d) The owner who takes the risk of starting a business and organises production. [4]

2. Sandrowe Scarves sells each scarf for 18.00. The wool, dye and packaging it buys in cost 11.20 per scarf. It sells 340 scarves a month.

(a) Define added value. [2] (b) Calculate the total added value for the month. [2]

3. Sandrowe Scarves finds that the cost of bought-in inputs rises to 12.40 per scarf. The price stays at 18.00 and it still sells 340 scarves.

(a) Calculate the new added value per scarf. [1] (b) Calculate by how much the total monthly added value falls. [2] (c) Explain one way Sandrowe Scarves could increase added value. [3]

4. Ottersby Bakery can spend its savings on one of three projects: a new oven (expected extra profit 4,200 a year), a second van (3,600 a year) or a shop extension (3,100 a year). It chooses the oven.

(a) Define opportunity cost. [2] (b) Identify the opportunity cost of choosing the oven and justify your answer. [2]

5. Gurnard Fisheries catches fish at sea. Nashgrove Foods buys the fish, freezes it and packs it into family meals. A shop sells the packed meals to the public.

(a) State the economic sector (primary, secondary or tertiary) in which each of the three businesses mainly operates. [3] (b) Explain why a business such as Gurnard Fisheries might decide to operate in more than one sector. [3]

6. (a) Define the private sector. [2] (b) Define the public sector. [2]

7. Explain one way in which the usual aims of a private sector business differ from those of a public sector organisation. [3]

8. Mirabane Cafe sells 2,500 drinks a month at 3.60 each. The coffee, milk and cups it buys in cost 1.35 per drink. Rent, wages and other costs come to 4,100 a month. The owner is thinking of raising the price to 3.90, and expects sales to fall to 2,300 drinks a month.

(a) Calculate the added value per drink at the current price. [1] (b) Calculate the total monthly added value at the current price. [1] (c) Calculate how much of the added value is left after the rent, wages and other costs are paid. [1] (d) Analyse the effect of the price rise on the total monthly added value. [3]

9. Caldmoor Farm Shop has 20,000 to invest and can do only one of the following. Project A is a greenhouse, expected to give extra profit of 5,400 a year and to let the farm grow crops through more of the year. Project B is a cold store, expected to give 4,800 a year and to reduce wasted produce. Project C is a shop extension, expected to give 6,100 a year but only if more customers visit.

(a) Calculate the opportunity cost if the owner chooses Project C. [2] (b) Evaluate which project the owner should choose. [6]

10. Drumlin Timber owns a forest and a workshop. The workshop can make one product line this year, not both. Option 1 is flat-pack plank sets, sold at 95 each, with bought-in fixings, finish and packaging costing 38 per set, and 600 sets a month. Option 2 is finished tables, sold at 210 each, with bought-in hardware and finish costing 120 per table, and 250 tables a month. The wood comes from the firm’s own forest.

(a) Calculate the added value per unit for each option. [2] (b) Calculate the total monthly added value for each option. [2] (c) Evaluate which option Drumlin Timber should choose. [6]

11. For each organisation, state both its sector by type of activity (primary, secondary or tertiary) and its sector by ownership (private or public). (a) A hospital run by the government. (b) An iron-ore mine owned by a group of private investors. [4]

Answers

1. (a) Land [1]. (b) Labour [1]. (c) Capital [1]. (d) Enterprise [1]. [4] Examiner insight: One word per part is enough. “Money” for the machine or “wages” for the programmers names a payment, not a factor.

2. (a) Added value is the difference between the selling price of a product [1] and the cost of the bought-in materials or inputs used to make it [1]. [2] (b) Added value per scarf = 18.00 - 11.20 = 6.80 [1]. Total = 6.80 x 340 = 2,312 [1]. [2] Examiner insight: Show the per-unit step before multiplying, so a slip in the second step can still be seen as sound method.

3. (a) 18.00 - 12.40 = 5.60 per scarf [1]. [1] (b) New total = 5.60 x 340 = 1,904 [1]. Fall = 2,312 - 1,904 = 408 [1]. [2] (c) Raise the selling price, for example to 21.00 [1], by improving the design or the brand so that customers are willing to pay more [1]. With input costs of 12.40, added value per scarf becomes 8.60, which is above the original 6.80 (provided sales hold up) [1]. [3] Examiner insight: A “way” gains most when followed by its effect on price or input cost. “Make more scarves” changes quantity, not added value per unit.

4. (a) Opportunity cost is the benefit of the next best alternative [1] that is given up when a choice is made [1]. [2] (b) The second van, worth 3,600 a year of extra profit [1], because it is the next best alternative to the oven; the extension (3,100) is lower and so is not counted [1]. [2] Examiner insight: A reason that ranks the options shows you know only the next best alternative counts, not the sum of 3,600 and 3,100.

5. (a) Gurnard Fisheries is primary [1]. Nashgrove Foods is secondary [1]. The shop is tertiary [1]. [3] (b) A business can operate in more than one sector [1]. For example, Gurnard Fisheries could freeze and pack some of its own catch, or open its own shop [1]. It would then add value at more than one stage and keep that value for itself, instead of leaving it to other firms [1]. [3] Examiner insight: Classify by what the business mainly does. Links to the chain of production and to adding value tie the explanation to this business.

6. (a) The private sector is made up of businesses and organisations owned and controlled by individuals or groups of individuals [1] and not by the government (such as owners or shareholders) [1]. [2] (b) The public sector is made up of organisations owned and controlled by the government [1], national or local [1]. [2] Examiner insight: Ownership and control separate the two definitions. Examples alone, with no statement of who owns the organisation, leave a definition incomplete.

7. Private sector businesses usually aim mainly to make a profit [1], whereas public sector organisations usually aim mainly to provide a service to the public [1]. For example, a private clinic may set fees to earn a profit, while a government clinic may aim to treat everyone who needs care [1]. [3] Examiner insight: The word “usually” matters, since private firms can have social aims and public bodies must control costs.

8. (a) 3.60 - 1.35 = 2.25 per drink [1]. [1] (b) 2.25 x 2,500 = 5,625 [1]. [1] (c) 5,625 - 4,100 = 1,525 [1]. [1] (d) New added value per drink = 3.90 - 1.35 = 2.55 [1]. New total = 2.55 x 2,300 = 5,865 [1]. This is 240 more than 5,625, so total added value rises even though sales fall, because the extra 0.30 on each drink outweighs the 200 lost sales [1]. [3] Examiner insight: Analysis needs the comparison with the old figure and a reason. Stating 5,865 alone is only a calculation.

9. (a) The next best alternative to Project C is Project A, at 5,400 a year [1]. The opportunity cost is therefore 5,400 a year of extra profit given up [1]. [2] (b) Project C has the highest expected return, 6,100, which is 700 more than Project A [1]. However, it only brings that return if more customers visit, so it is the riskiest [1]. Project A returns less but the greenhouse lets the farm grow crops for more of the year, so it depends less on visitors [1]. Project B returns least, 4,800, and is worth choosing only if the saving from less waste is large, which the data does not show [1]. On the figures alone I would choose Project C, because the return is highest and the 700 gain over the opportunity cost is the largest margin [1]. However, if the owner cannot be confident of more visitors, Project A is the safer choice [1]. [6] Examiner insight: A judgement gains credit when it weighs both sides and rests on a reason such as risk or the forgone return. Choosing Project C only because it is largest stays descriptive.

10. (a) Option 1: 95 - 38 = 57 per set [1]. Option 2: 210 - 120 = 90 per table [1]. [2] (b) Option 1: 57 x 600 = 34,200 [1]. Option 2: 90 x 250 = 22,500 [1]. [2] (c) Option 2 adds more value per unit (90 against 57) [1], but Option 1 gives the higher monthly total, 34,200 against 22,500, a difference of 11,700 [1]. Choosing Option 2 would mean giving up the 34,200 of Option 1, which is its opportunity cost [1]. Added value is not profit: tables may need more skilled labour and machine time, and these costs come out of the added value [1]. The figures also assume all 600 sets or 250 tables sell [1]. On balance, Option 1 is the better choice because its total is far higher, unless its extra labour costs are much larger than those of the tables [1]. [6] Examiner insight: Use the total as well as the per-unit figure, and notice that the better unit figure does not give the better total.

11. (a) Tertiary [1] and public [1]. (b) Primary [1] and private [1]. [4] Examiner insight: Each organisation needs two labels. Activity and ownership are different classifications, so one label answers half the question.

Where marks are usually lost

• Writing “money” for capital, or naming wages or rent when asked for a factor.
• Including rent and wages in the cost of bought-in inputs when finding added value.
• Giving added value per unit when a monthly total is asked for.
• Defining opportunity cost as the money spent, or listing every rejected option.
• Mixing up the primary, secondary and tertiary classification with private and public.
• Evaluating one side only, or deciding with no reason.

Next steps

• Re-read the study guide for questions you missed.
• Revise from the revision notes.
• Tick off progress on the checklist and the Cambridge IGCSE Business hub.
• Take the free diagnostics to compare topics.
• Book a free trial class for help with weaker topics.

Frequently asked questions

What are common mistakes on business activity and sectors questions in IGCSE Business 0264? Students often write “money” for capital, include rent and wages in the cost of bought-in inputs when finding added value, give added value per unit when a monthly total is asked for, and mix up the primary, secondary and tertiary classification with private and public. Evaluating one side only also loses marks.

How do you find the opportunity cost of a choice? Identify the options, pick the one chosen, then name the benefit of the next best alternative given up. Only that one alternative counts, not every option rejected and not the money spent on the choice.

Which sections of the Cambridge IGCSE Business 0264 syllabus do these questions cover? They cover section 1.1 (Business activity) and section 1.2 (Economic sectors), including factors of production, added value, opportunity cost and the primary, secondary, tertiary, private and public sectors.

Can an organization belong to two sectors at once? Yes. Every organization has a sector by type of activity (primary, secondary or tertiary) and a sector by ownership (private or public), so a state-run railway is tertiary and public.

Official syllabus

Cambridge IGCSE Business 0264 syllabus for examination in 2027, 2028 and 2029, published by Cambridge University Press & Assessment (Cambridge International Education), sections 1.1 Business activity and 1.2 Economic sectors.