O Level Business: External influences on business activity — Practice Questions (Cambridge 7115)

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 — Cambridge International holds copyright in its own papers. Use these alongside the official past papers available from your board.

Each question practises a skill tested in the June 2024 Paper 12. After each answer there is an examiner insight, a mark-scheme insight or a tip and, where one matches, the real question to try next.

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Questions

1. Define “import quota”. [2]

2. A government cuts the rate of tax on company profits. Give two ways a business could gain from paying less tax on its profits. [2]

3. A company is building a large cement factory on the edge of a town. The people of the town are not involved in the business. Describe one way the factory could harm them and one way it could help them (one external cost and one external benefit). [4]

4. An environmental pressure group objects to a clothing retailer selling cheap, low-quality clothes that are quickly thrown away. Explain one way the pressure group might try to influence the retailer’s decisions. [3]

5. A business in country A, whose currency is the dollar, sells a machine part to customers in Europe. It keeps the price at 60 dollars. The exchange rate changes from 1 dollar = 0.80 euros to 1 dollar = 0.90 euros. (a) Calculate the price of the part in euros before and after the change. (b) State one likely effect of this change on the business’s export sales. [3]

6. Explain one way a rise in interest rates could affect a business that has a large bank loan. [2]

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Answers

1. A limit on the quantity (number or amount) of a product [1] that is allowed to be imported into a country [1].

Mark-scheme insight (Cambridge 7115 June 2024 mark scheme, Paper 12, Question 4(a)): Both marks need two ideas: a limit on the quantity of goods, and those goods coming into the country. A partial definition earned one mark, and answers that confused a quota with a tariff (a tax on imports) were not credited.

Source for the mark-scheme insights on this page: Cambridge O Level Business Studies 7115 June 2024 mark scheme for Paper 12 (7115/12), paraphrased. Cambridge’s 7115 past papers page publishes the Paper 11 mark scheme from this series, not the Paper 12 one.

Try the real question next: Cambridge O Level Business Studies 7115, June 2024, Paper 12, Question 4(a).

2. Any two: more profit is retained after tax [1]; more money available for investment or expansion [1]; lower cash outflows [1]; higher profit margin after tax [1].

Examiner insight (Cambridge 7115 June 2024 examiner report, Paper 12, Question 4(b)): A common mistake was to repeat the question by saying the business pays less tax. Others confused tax with interest rates, or assumed lower taxes mean employees are paid more, which does not necessarily follow.

Source for the examiner insights on this page: Cambridge O Level Business Studies 7115 June 2024 Principal Examiner Report for Teachers, Paper 7115/12 section, paraphrased.

Try the real question next: Cambridge O Level Business Studies 7115, June 2024, Paper 12, Question 4(b).

3. External cost: dust and air pollution [1] from making cement, which could harm the health of people living in the town [1] (also credit: extra lorry traffic and congestion; loss of green land). External benefit: new jobs for local people [1], reducing unemployment in the town [1] (also credit: better roads built to serve the factory; taxes paid to the government).

Examiner insight (Cambridge 7115 June 2024 examiner report, Paper 12, Question 3(c)): Most candidates knew external costs but many struggled with an external benefit. Simply saying the business provides its product (here, cement) is not an external benefit, and costs or benefits to the business itself are not external.

Try the real question next: Cambridge O Level Business Studies 7115, June 2024, Paper 12, Question 3(c).

4. The pressure group could organise a consumer boycott [1], urging shoppers not to buy from the retailer [1], which would reduce its sales and revenue, putting pressure on it to sell longer-lasting clothes [1]. (Also credit: protests or publicity campaigns that damage the retailer’s reputation; lobbying the government to change the law.)

Examiner insight (Cambridge 7115 June 2024 examiner report, Paper 12, Question 3(e)): Some answers only repeated the word “pressure” without saying how the influence would happen, and some explained why a group wants to influence a business instead of how it does so.

Try the real question next: Cambridge O Level Business Studies 7115, June 2024, Paper 12, Question 3(e).

5. (a) Before: 60 × 0.80 = 48 euros [1]. After: 60 × 0.90 = 54 euros [1]. (b) The part is now more expensive for foreign buyers, so export sales are likely to fall [1].

Tip: When a country’s currency appreciates (buys more foreign currency), its exports become dearer abroad and imports become cheaper at home.

6. The business will have to pay higher interest on its loan [1], which raises its costs and reduces its profit (or leaves less cash for other spending) [1].

Tip: Develop the point — say what the higher interest payments do to costs, profit or cash flow, not just that “the loan costs more”.

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Where marks are usually lost

• Confusing an import quota (a limit on quantity) with a tariff (a tax on imports).
• Repeating the question, such as “the business pays less tax”, instead of giving a benefit.
• Giving costs or benefits to the business itself when the question asks about external costs and benefits.
• Saying a pressure group “puts pressure on” a business without explaining the method it uses.
• Getting the direction of an exchange-rate effect the wrong way round.