CAIE A-Level Business 1 Business and Its Environment Question Bank

Practise Business and its Environment through enterprise, ownership, size, objectives, stakeholders and external influences, applying each idea to the organisation in the case.

Covered syllabus points

1.1 Enterprise 1.2 Business structure 1.3 Size of business 1.4 Business objectives 1.5 Stakeholders in a business

[Maximum number: 4]

Office Furniture Designs (OFD)

Markus is an entrepreneur and is planning to set up a private limited company called OFD in four weeks' time. OFD will be an online retailer selling office furniture directly to business customers. Products will be sent directly to customers from OFD's warehouse. OFD's product range will include office chairs, desks and filing cabinets.

Markus will have limited start-up funds. OFD will operate in a competitive market and Markus is keen to offer high-quality customer service. He also will have to think carefully about opportunity cost.

As part of his business planning, Markus has prepared a cash flow forecast (see Table 1.1).

$Table 1.1 OFD's cash flow forecast June - August 2023 (\$ 000)$

Table 1.1 OFD's cash flow forecast June - August 2023 (\$ 000)

Markus plans to offer all customers one month trade credit. However, as OFD is a new business, suppliers may insist on payment on delivery. Markus is currently researching sources of finance to improve OFD's cash flow.

OFD will need five employees who will work in the warehouse and three customer service assistants. Markus plans to offer two weeks of induction training to all employees.

(a)

Identify one quality an entrepreneur needs for success.

[ 1 ]

(b)

Explain the term opportunity cost.

[ 3 ]

Explain the term opportunity cost.

Figure for Answer to Question (b) — CAIE A-Level Business AS

Indicative content

AO1 Knowledge and understanding

Knowledge of opportunity cost may include:

- Opportunity cost is the benefits forgone/lost of the next best alternative/when a decision is made.

- What is lost when a decision is made.

AO2 Application

Limited application applies knowledge of opportunity cost to a

- choice/decision OR to the lost benefit.

Developed application □ + applies knowledge of opportunity cost to a

- choice/decision AND to the lost benefit.

Application can be made to Markus/OFD or any other scenario/context/business/person.

Accept all valid responses.

1(a)(ii)

Mark

Rationale

The next best alternative that has been given up □. For example, if Markus chooses to spend money on customer services and not marketing then the opportunity cost would have been the loss of the marketing benefits □.

3

An answer which starts with the knowledge and then applies it to Markus.

3

Again, knowledge first, followed by application to a
decision (choose to buy some desks) and to the lost benefit (not being able to buy chairs).

The next best thing forgone when making a decision. A business could choose to buy some desks, but they would miss out on being able to buy chairs.

If a business has £ 100 and they choose to buy inventory instead of fuel 四, then the opportunity cost is the lost benefit of the fuel because it has been lost □.

3

A different way of answering the question. There is application of both elements of opportunity cost (the
choice and the lost benefit) as well as clear knowledge of the concept by the end of the response.

The next best opportunity forgone. For example,
when you choose to buy a chocolate bar

2

Clear knowledge. Some application of a choice, but not the lost benefit.

What you miss out on when a decision is made.

1

Not a perfect definition, but enough to award the knowledge mark. No attempt to apply.

It is about choices that have to be made by a business, for example choosing to buy a new piece of machinery.
□

0

No knowledge of opportunity cost. Too vague.

[Maximum number: 5]

(a)

Define the term quaternary sector.

[ 2 ]

(b)

Explain one factor of production needed for business activity.

[ 3 ]

Explain one factor of production needed for business activity.

Indicative content

Responses may include:

AO1 Knowledge and understanding - 1 mark for identifying one factor of production needed for business activity. Use of any factor below as an input into the transformation process

- land

- labour

- capital

- enterprise

AO2 Application - 2 marks ${ }^{\Delta=\text { Fe }}$ for a developed explanation of one factor of production needed for business activity.

1 mark ${ }^{5 * e}$ for a limited explanation of one factor of production needed for business activity.

- choosing the location of the business, e.g. for shops, to build a factory, natural resources in the land such as water, oil, fields, woods. Land to fish, grow crops, drill for oil, mine

- people that work in the business such as teachers, joiners, builders or doctors. Employees to work in the business, skilled and unskilled, their quality and experience

- the money and equipment such as machinery or delivery trucks, used to produce the product or service

- set of skills that develops new ways of doing things or new things to do. Ability to be creative and innovative, having an idea of how to use the land, labour and capital to make a profit, to create a business/product which will succeed in the market

- start a business/risk taking/new ideas

Accept all valid responses.

PUBLISHED

[Maximum number: 15]

(a)

Explain one way to measure the size of GT.

[ 3 ]

Explain one way to measure the size of GT.

Figure for Answer to Question (a) — CAIE A-Level Business AS

Indicative content

AO1 Knowledge and understanding

- Knowledge of an appropriate way to measure the size of a business; revenue, number of outlets, number of employees, market share, number of customers, market capitalisation capital employed, area/space etc.

Do not allow profit - which is a measure of success or performance, but not size.

No further marks can be gained without knowledge and understanding

AO2 Application

Limited application ${ }^{\triangle p \mathrm{~F}}$ , applies knowledge to GT once.

percentage change).

1(b)(ii)

\multirow{7}{*}{- Use of data related to GT to show the size of the business (this data can be used more than once)

& 2020 & 2021 & 2022

Sales revenue ($m) & 3.4 & 3.2 & 2.8

Number of

employees

54

55

Profit ($m)

0.9

0.3

0.2

Number of visitors

(m)

0.8

0.8

0.65

\end{tabular}

- GT includes a museum, tours, a roller coaster, restaurant, and gift shop

- Some employees previously worked in the gold mine

- Some employees are tour guides and customer service representatives

Accept all valid responses.
\end{tabular}}

1(b)(ii)

(b)

Evaluate the importance to the ongoing success of GT of developing intrapreneurship.

[ 12 ]

Evaluate the importance to the ongoing success of GT of developing intrapreneurship.

&

1(d)

Indicative content
AO1 Knowledge and understanding
Knowledge of intrapreneurship (max $2{ }^{\mathrm{a}} \mathrm{s}$ ), including:
- Intrapreneurship is where the workers come up with innovative ideas using enterprise to increase the profitability of the
business. The business may reward the intrapreneur for their ideas.
- Allows employees to act like entrepreneurs / introduce enterprise within the business (employed).
- The qualities of intrapreneurship, including; passion, talent, curiosity, motivation, resourcefulness, networking,
confidence, knowledge and experience.
- the role of intrapreneurship, including: problem solving, idea generation, identify opportunities, overcome threats,
empowerment.
No further marks can be gained without knowledge and understanding
AO2 Application
Limited application ${ }^{\Delta \mathrm{FB}}$ applies knowledge of intrapreneurship to GT once.
Developed application ${ }^{\mathrm{App}}+{ }^{\mathrm{App}}$ applies knowledge of intrapreneurship to GT twice.
- Link to leisure markets, such as days out and entertainment.
- Link to elements specific to GT's intrapreneurship, such as:
- some employees used to work in the gold mine - good knowledge about the theme of GT
- some employees are younger workers on flexible contracts
- falling sales ($3.4m in 2020 to $2.8m in 2022 - 17.65\% fall)
- fewer employees in 2022 than 2021 - loss of intrapreneurship skills
- falling profit ($0.9m in 2020 to $0.2m in 2022-77.78\% fall) - link to ability to fund ideas
- fall in visitors due to; not fun, too high prices.
AO3 Analysis
Limited analysis - candidate shows one link in the chain of analysis.
Developed analysis - candidate shows two or more links in the chain of analysis.
Advantages of intrapreneurship to GT may include:
- Using GT's own resources to find solutions to their falling visitor numbers may be cheaper than external management
consultants - lower GT's cost and increase profit.
- GT workers may provide better / more effective solutions to GT's problems - more likely to increase visitor numbers.
- Use of the mine's previous employees for their intrapreneurial ideas may be more likely to improve the business -
increase visitor numbers.
- Asking for employee involvement may increase the motivation of the staff - increased productivity/sales revenue,

1(d)

Disadvantages of intrapreneurship to GT may include:

- GT's employees (especially the younger workers on flexible contracts) may not have the experience and/or knowledge to help GT increase visitor numbers - opportunity cost of spending time on tasks other than their main function.

- GT's employees may not provide adequate solutions which may not increase visitor numbers - GT may make a loss in the future.

- GT needs a quick solution (because profit is likely to become loss in the near future) and intrapreneurship may not provide this - visitor numbers may not increase leading to GT making a loss or not surviving.

- GT already has two possible solutions (lower price and increase fun of the park), so a focus on intrapreneurial ideas may waste time - opportunity cost.

AO4 Evaluation

Limited evaluation - unsupported judgement and/or a weak attempt at evaluative comment

Developed evaluation E - supported judgement and/or reasonable evaluative comment

Developed evaluation in context ${ }^{\text {EE }}$ - supported judgement in context and/or reasonable evaluative comment in context.

- A judgement about the likely role of intrapreneurship in the ongoing success of GT.

- What the judgement might depend upon; the timeframe that GT must find a solution to their falling visitor numbers, the ability/skill of GT's workers, the ability/skill of Kayo to utilise the intrapreneurial skills of GT's employees, the validity of GT's previous primary market research, the findings of the secondary market research etc.

- Weighing up of the arguments for the role of intrapreneurship to the ongoing success of GT.

Accept all valid responses.

1(d)

Exemplars for awarding evaluation

[Maximum number: 1]

Fizzy Drinks (FD)

FD is a private sector business that manufactures an international brand of carbonated drinks. Its slogan was 'A premium drink for premium customers'. The market for FD's drinks is very competitive, with 7 national and 12 international brands all competing in the same market. Recently FD lost the title of market leader to TR, one of its largest competitors. TR is a multinational public limited company.

Table 2.1 FD financial data 2023

Employee morale has dropped as a result of the negative feedback. Key employees have left to work for FD's competitors. The lack of experienced employees has led to a drop in the productivity of the production process.

Identify one objective of a private sector business.

All question bank results loaded

Covered syllabus points

1. Business and its environment question 1

Question (a)

Question (b)

1. Business and its environment question 2

Question (a)

Question (b)

1. Business and its environment question 3

Question (a)

Question (b)

1. Business and its environment question 4