OCR A Level Business: External Influences Facing Businesses — 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: External Influences Facing Businesses study guide | External Influences Facing Businesses revision notes

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These questions represent OCR H431/02 (The UK Business Environment), whose live paper opens with a Section A of short-answer questions (20 marks) and continues with a Section B of extended-response questions (60 marks) that relate to a Resource Booklet describing a real-life business.

Section A — Short-Answer Questions

1. Distinguish between market size and market growth. [2]

2. State three factors that facilitate globalisation. [3]

Section B — Extended-Response Questions

Questions 3–9 are free-standing and do not use the Resource Booklet. Question 10, at the end of this section, uses the Resource Booklet on Ferrowest Components Ltd.

3. Explain why monopoly, oligopoly and monopolistic competition are best understood as a spectrum of competitive intensity rather than three fixed, separate categories. [6]

4. A component supplier’s production costs rise sharply. Using a demand-and-supply diagram in your own description, explain the effect this has on the market equilibrium price and quantity. [6]

5. Explain why market dominance is not the same as simply being a large firm. [4]

6. State one advantage and one disadvantage of the UK not being part of the EU/Eurozone and the single market for a UK business, explaining each in the context of a specific business rather than in the abstract. [6]

7. Explain the difference between an ethical factor and a legal factor affecting a business, using an example of each. [4]

8. A UK manufacturer experiences a sharp currency depreciation. Explain the chain of effects this has on the business’s imported raw material costs and its final impact on margins or prices. [6]

9. Evaluate whether globalisation is likely to benefit a medium-sized UK manufacturing business that begins exporting to a new overseas market. [12]

Resource Booklet. Ferrowest Components Ltd is a UK-based manufacturer of precision metal parts for the automotive industry, supplying both UK car makers and, increasingly, customers in mainland Europe. Around a third of its raw steel is imported. Its main UK rivals are two larger, more diversified engineering groups; its most direct competitor for price-sensitive contracts is a lower-cost manufacturer based overseas. Ferrowest’s directors are reviewing how far external economic and political conditions should shape the company’s strategy over the next three years.

Question 10 refers to Ferrowest Components Ltd.

10. Using Ferrowest Components Ltd, evaluate whether the company should reduce its reliance on imported steel by sourcing more materials domestically. [15]

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Answers

1. Market size is the total value or volume of sales in a market at a given point [1]; market growth is the rate of change in that size over time [1].

2. Any three of: the internet and communication technologies; e-commerce; trade liberalisation; transport infrastructure; the expansion of multinationals across borders [1 mark each, max 3].

3. Market structure is best understood through decision-making power and barriers to entry/exit rather than fixed labels. Monopolistic competition has many firms [1] and low pricing power because differentiated products still compete closely on price [1]. Oligopoly has few large, interdependent firms with moderate-to-high pricing power, since each must react to rivals’ pricing decisions [1] [1]. Monopoly has one dominant firm with high pricing power because barriers to entry are severe [1]. A real firm sits somewhere on this spectrum, and a strong evaluative answer identifies where rather than forcing it into one textbook box [1].

4. Higher production costs shift the supply curve to the left (less is supplied at every price) [1] [1]. At the original price, this creates a shortage, since quantity demanded now exceeds quantity supplied [1]. Price rises until a new, higher equilibrium is reached, at which point quantity traded falls relative to the original equilibrium [1] [1]. The size of the price rise depends on how responsive demand and supply are to price changes at that point on the curves [1].

5. Market dominance is about decision-making power over price and output relative to competitors, not size alone [1] [1]. A large firm operating in a market with low barriers to entry or exit — where several credible rivals can enter easily, or products are easily substitutable — may have little real pricing power despite its size, because customers and potential entrants constrain its choices [1] [1].

6. Example advantage: being outside the EU and single market means a UK business is free from EU regulatory standards it might otherwise have to meet, and the UK government can negotiate independent trade deals with non-EU countries that may suit a specific business’s export markets better than an EU-negotiated deal would [1] [1] [1]. Example disadvantage: a UK exporter now faces customs checks, rules-of-origin paperwork and potential tariffs when selling into the EU that did not apply when the UK was a member, raising costs and slowing delivery times, and the business no longer has automatic tariff-free access to the single market it previously had [1] [1] [1].

7. A legal factor is compulsory and enforceable — for example, health and safety legislation a business must comply with regardless of its own preferences [1] [1]. An ethical factor is a voluntary business choice that goes beyond the legal minimum — for example, a business choosing to pay above the legal minimum wage or avoid a legal-but-controversial supplier [1] [1]. Exam questions test this distinction directly, so an answer that treats the two as interchangeable loses marks [implicit throughout].

8. Currency depreciation makes foreign currency more expensive to buy, so importing raw materials priced in that foreign currency costs more in domestic currency [1] [1]. This raises the business’s input costs [1]. Unless the business can pass this on, its profit margins are squeezed [1]; if it raises prices to protect margins, it risks losing price-sensitive customers to competitors [1] [1]. A strong answer traces this full chain step by step rather than describing “exchange rates” and “costs” as separate, unconnected points.

9. Benefits: access to a larger customer base can increase sales volume and smooth demand if the new market’s economic cycle differs from the UK’s [1] [1]; exporting can allow the business to exploit economies of scale as output rises [1]; success can reduce reliance on a single, potentially saturated domestic market [1], spreading risk away from a downturn in the UK economy specifically [1]. Risks: the business faces new PESTLE factors it has less experience managing — unfamiliar regulation, currency risk on export revenue, and cultural or logistical barriers to trade [1] [1] [1]; a full evaluation weighs these opportunities against the threats rather than treating globalisation as automatically positive. Judgement: the outcome depends on how well the business researches the specific target market [1], how it manages currency exposure [1], and whether it enters gradually (e.g. via a local partner) rather than committing large resources immediately [1]. A manufacturer with a differentiated, in-demand product and modest initial commitment is better placed to benefit than one that expands into an unfamiliar market with high fixed costs and no local knowledge [1].

10. For sourcing more domestically: it would remove Ferrowest’s exposure to currency depreciation on the third of its steel that is imported, since a weaker pound raises the domestic-currency cost of foreign-priced inputs [1] [1]; it would also shorten and simplify the supply chain, reducing exposure to shipping delays, tariffs or trade-policy changes that could disrupt an imported input [1] [1]; and it could support a stronger “buy British” positioning with UK car-maker customers who increasingly ask about supply-chain resilience [1]. Against: domestic steel may be more expensive per tonne than the current imported source, directly raising production costs and squeezing margins against the lower-cost overseas competitor already undercutting Ferrowest on price-sensitive contracts [1] [1]; switching suppliers also carries transition risk — a new domestic supplier may not immediately match the reliability, quality or capacity of the existing import relationship [1] [1]; and domestic steel capacity may itself be limited, meaning Ferrowest cannot necessarily source all it needs at short notice [1]. Judgement: the right choice depends on how much of the currency and supply-chain risk Ferrowest can otherwise hedge or absorb, and on the actual price gap between domestic and imported steel once transition costs are included [1] [1]; given that Ferrowest already competes against a lower-cost overseas rival, a full switch away from cheaper imported steel risks weakening its price competitiveness precisely where it is already under the most pressure, so a partial, phased shift — reducing rather than eliminating import reliance — better balances the two risks [1] [1] [1].

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Where marks are usually lost

• Naming a market structure from a textbook definition instead of explaining where the business sits on the competitive spectrum.
• Confusing a shift in the supply curve with a movement along it.
• Equating firm size with market dominance.
• Treating globalisation, or the UK not being part of the EU, the Eurozone and the Single European Market, as purely positive or purely negative rather than evaluating both sides for a specific business.
• Discussing ethical and legal factors as if they were the same thing.

Approaching external influences questions

The highest-value skill this topic rewards is linking one external factor to a specific, named consequence for a specific business, rather than listing PESTLE categories in isolation. Before writing an evaluative answer, identify which one or two factors matter most in the scenario given, trace the causal chain from that factor through to costs, revenue or strategy, and only then weigh the opportunity against the risk. Diagram-based questions on demand and supply should always state which curve shifts, in which direction, and why, before describing the new equilibrium — examiners reward the reasoning behind the shift as much as the correct final answer.