IGCSE Business Studies: Understanding Business Activity — 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: Understanding Business Activity revision notes

A note on this syllabus’s validity. 0450 last examines in 2026. Cambridge replaces it with 0264 (“Cambridge IGCSE Business”) from 2027 onward, which changes the assessment-objective weightings from 40/20/25/15 to 35/30/22/13, reduces each Paper 1 question from five parts to four, and revises the subject content. Some sub-topics keep their numbers (for example 1.1 Business activity and 3.2 Market research); others are renamed, reordered, split or newly added (for example 4.2 Technology and production of goods and services and 4.3 Sustainable production of goods and services are new), so the numbering does not always match. Always check which syllabus code your own examination series uses.

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Part One — Short-answer questions

1. Define added value, and state two ways a business could increase it. [3]

2. Explain the difference between unlimited and limited liability. [2]

3. State three ways of measuring the size of a business. [3]

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Part Two — Structured questions

4. Amina runs a bakery as a sole trader. She is considering forming a private limited company.

(a) State two advantages of remaining a sole trader. [2]

(b) Explain two benefits to Amina of forming a private limited company. [4]

(c) Explain one drawback of converting. [2]

5. A large supermarket chain plans to open a new store on the edge of a small town.

(a) Identify three stakeholder groups affected. [3]

(b) Explain one conflict between two of these stakeholder groups. [3]

(c) Consider whose interests the business should prioritise. Justify your answer. [3]

6. A business measured by employee numbers appears small, but its capital employed is very large.

(a) Identify what type of business this might be. [1]

(b) Explain why using employee numbers alone can be misleading. [3]

7. Explain the difference between a need and a want, and explain what is meant by opportunity cost. [3]

8. State the three economic sectors of business activity, and give one example of a business in each. [3]

9. Explain what is meant by the “divorce of ownership from control” in a public limited company, and why it can cause problems. [3]

10. State one advantage and one disadvantage of forming a partnership instead of remaining a sole trader. [2]

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Answers

1. Selling price minus the cost of bought-in materials [1]. Any two: branding, improved design, better customer service, greater convenience, or reducing input costs [1] [1]. Added value is not profit — wages and rent still come out of it.

2. Unlimited liability means the owner’s personal assets can be taken to pay business debts [1]; limited liability means the owner can lose only the amount invested [1].

3. Any three: number of employees [1]; capital employed [1]; value of output or revenue [1]; market share [1].

4. (a) Any two: she keeps all the profit [1]; she has full control of decisions; setting up is quick and cheap; her accounts stay private [1].

(b) Limited liability [1] — her personal assets such as her home would be protected if the business failed [1]. Easier to raise capital [1] — she could sell shares to family or investors to fund expansion [1].

(c) Any one, developed: accounts must be filed publicly [1], so competitors could see her financial position [1]. (Or: formation costs and legal paperwork; loss of some control if shares are sold.)

5. (a) Any three: customers, employees, local community, existing local shops, suppliers, shareholders, local government [1] [1] [1].

(b) For example: the local community wants low traffic and to keep local character [1], while the shareholders want the store built to increase profit [1]. These conflict because expansion that raises profit also brings increased traffic, noise and competition for existing shops [1].

(c) A justified answer, e.g.: prioritise customers [1], because without their custom the store generates no revenue and the other stakeholders’ interests cannot be met either [1] — though this depends on whether local opposition could block planning permission [1]. Credit any well-argued choice. The mark is for the justification, not the choice.

6. (a) A capital-intensive business, such as an oil refinery or an automated factory [1].

(b) It employs few people because production is highly automated [1], but it has invested heavily in machinery and equipment [1]. Employee numbers therefore understate its true size, so more than one measure should be used [1].

7. A need is essential for survival (food, shelter, clothing), while a want is desirable but not essential [1]. Opportunity cost is the value of the next best alternative given up when a choice is made, arising because resources are scarce but wants are unlimited [1] [1].

8. Primary — extracts natural resources, e.g. farming or mining [1]. Secondary — manufactures or processes, e.g. car assembly or baking [1]. Tertiary — provides services, e.g. retail or banking [1].

9. Shareholders own the business, but directors run it day to day [1], and the two groups’ objectives may diverge — for example, directors may prioritise growth or their own pay over the dividends shareholders want [1], creating a conflict of interest that is harder to resolve than in a business run directly by its owner [1].

10. Advantage: a partnership brings in more capital and shared expertise [1]. Disadvantage: profit must be shared among partners, and there is the possibility of disagreement between them [1].

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Where marks are usually lost

• Confusing added value with profit.
• Saying limited liability means the business has limited debts.
• Listing stakeholders without explaining the conflict between them.
• Giving a conclusion with no justification.
• Using a single measure of business size without acknowledging its limits.
• Confusing needs with wants, or defining opportunity cost as simply “the cost of something”.
• Placing a business in the wrong economic sector, e.g. calling a bakery “primary” rather than “secondary”.
• Assuming shareholders and directors always want the same thing.