OxfordAQA IGCSE Business: Business in the Real World — 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 in the Real World revision notes

---

Section A

1. State three reasons why a person might start their own business. [3]

2. Explain the difference between a private limited company and a public limited company. [4]

Section B

3. A manufacturer is considering expanding into an overseas market.

(a) Explain two opportunities this could create. [4] (b) Explain two risks. [4]

4. Explain how each of the following external factors could affect a clothing retailer: a rise in interest rates, a fall in the exchange rate, new employment legislation. [9]

5. Explain two internal and two external sources of finance suitable for a small business, giving a drawback of each. [8]

6. Evaluate whether a business should always act ethically even when it reduces profit. [9]

7. A sole trader is considering converting her business into a partnership, or alternatively buying into a franchise.

(a) Explain one advantage and one disadvantage of operating as a sole trader. [4] (b) Explain why buying a franchise might appeal to someone starting a business for the first time. [4]

8. Distinguish between internal growth and external growth, and explain one risk of external growth. [6]

---

Answers

1. Any three: to be their own boss and have independence [1]; to earn more money or keep the profit [1]; to exploit a gap in the market or a new idea [1]; because they have been made redundant or want more flexible hours [1].

2. A private limited company (Ltd) cannot sell shares to the general public; shares are sold privately, usually to family and friends, and can only be transferred with the other shareholders’ agreement [1] [1]. A public limited company (plc) can sell shares on the stock exchange to anyone, raising far more capital but exposing it to takeover and to public scrutiny of its accounts [1] [1].

3. (a) Any two, 2 marks each: access to a much larger customer base, raising sales revenue and allowing economies of scale [1] [1]; spreading risk, so a downturn in the home market does not threaten the whole business [1] [1]; extending the life of a product that has reached maturity domestically [1] [1]. (b) Exchange rate movements can wipe out the profit margin on overseas sales [1] [1]; cultural and legal differences mean the product or marketing may need costly adaptation, and local regulations may be unfamiliar [1] [1]; transport costs and tariffs may make the product uncompetitive against local rivals [1] [1].

4. Rise in interest rates — consumers with mortgages and loans have less disposable income, so demand for non-essential clothing falls [1]; the retailer’s own borrowing costs rise, squeezing profit [1]; it may delay investment in new stores [1]. Fall in the exchange rate — imported stock becomes more expensive, raising costs and forcing either higher prices or lower margins [1] [1]; however, if the retailer exports, its goods become cheaper abroad, boosting overseas sales [1]. New employment legislation — for example a higher minimum wage raises the wage bill, increasing costs [1]; the business may respond by raising prices or reducing hours [1]; on the other hand better-paid staff may be more motivated and less likely to leave, reducing recruitment costs [1].

5. Internal: retained profit — no interest and no loss of control, but limited by past profitability and cannot be reinvested elsewhere [1] [1]. Sale of assets — raises cash quickly, but the business loses the use of that asset and may not get its full value [1] [1]. External: bank loan — a known repayment schedule, but interest must be paid and security is usually required [1] [1]. Trade credit — delays payment to suppliers at no cost, but only short-term and may forfeit discounts or damage supplier relations if abused [1] [1].

6. For always acting ethically: ethical behaviour builds reputation and customer loyalty, which supports long-term revenue [1]; it attracts and retains staff, who prefer to work for a business they respect [1]; unethical behaviour risks legal penalties, boycotts and lasting brand damage that far exceed any short-term saving [1]. Against: ethical sourcing and higher wages raise costs, and if competitors do not follow, the business may be undercut on price and lose market share [1]; a business in financial difficulty may have to choose between an ethical policy and survival, and jobs are lost if it fails [1]; consumers often say they value ethics but buy on price, so the commercial benefit is uncertain [1]. Judgement: ethical behaviour is usually profitable in the long run, particularly for a brand with a visible reputation [1]. The answer depends on how price-sensitive the market is and how much of the ethical premium customers will actually pay [1] — a business should set standards it can sustain rather than ones that threaten its survival [1].

---

7. (a) Advantage: she keeps all the profit and has full control over decisions, with no need to consult partners or shareholders [1] [1]. Disadvantage: she has unlimited liability, so personal assets are at risk if the business fails, and capital is limited to her own savings and borrowing [1] [1]. (b) A franchise provides a proven business format and brand name, reducing the risk of failure compared with starting from scratch [1] [1]; the franchisor typically provides training, marketing support and bulk-buying discounts, which a first-time owner would otherwise lack [1] [1].

8. Internal growth is organic growth from reinvested profit — slower, but it keeps full control and avoids the risk of clashing with another organisation’s culture [1] [1]. External growth is growth through merger or takeover — much faster, but it risks culture clash and integration failure, since combining two separate workforces, systems and management styles rarely goes entirely smoothly [1] [1] [1].

---

Where marks are usually lost

• Saying a plc’s shares are sold “to the public” without mentioning the stock exchange.
• Giving external factors without applying them to the specific business.
• Naming sources of finance without a drawback.
• Not acknowledging the commercial cost of ethical behaviour.
• Describing a franchise’s benefits without linking them to reduced risk for a first-time owner.
• Treating internal and external growth as differing only in speed, without addressing integration risk.