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Business Studies ( Revision question )

(ii) For each of the stakeholder groups listed in (i) explain how they would be
affected by the building of the dam. [9]

The shareholders want to know how much profit is expected from the operation of the dam (1)
so that they will receive dividends (2).

If the dam is very profitable it might also mean that the value of the Generation Elect shares
increase which means they would receive more money if they sold their shares (3).

Commumity- electricity, water, development of the area as new factories may come in and
around the dam as these companies may get good supply of water and electricity

Farmers- money in return for the land / or they may be relocated in remote areas which mat
not be beneficial to them and may ruin their settled lives

(b) Generation Elect is a public limited company. Explain how the objectives of the
business might be different if it was owned by the government. [8]

to make profit as that is the only way they can survive without profits they may not be able to
pay their creditors, employee and other suppliers hence the business may have to be shut down
banks are also willing to lend more to profitable business

growth,- to survive / for more profits/ higher status, to diversify and spread risk
they can diversify by buying or integrating with business in other sectors.

but the objectives of government owned companies might be to provide a service

To break-even so that at least the cost price is recovered other wise it would become very
difficult to sustain providing the service
to provide employment.- as the objective of the government is to provide employment for all
and to increase the GDP of the country and ultimately raise the standard of the people

2 (a) Abdul is considering buying a franchise for a furniture shop. What are the
advantages and disadvantages for Abdul of buying a franchise from a big furniture retail
business instead of setting up his own furniture shop? (10)

Business failure less likely as well known brand name.

Franchisor carries out advertising.- demand for product
Supplies are obtained from franchisor.- standard quality, superior quality
Help and advice when setting up.- some one to consult and learn and get trained ( basics
of business )
Training for staff and owner.— for having uniform quality of service for customers
Banks more willing to lend money.- as the brand is well known and well established
But – less independence. ( may not be able to be more creative and do things the way
he likes
May not be able to make decisions that would suit the local area- as
the same

customer experience standard quality is preferred over local as a business
strategy .
License must be paid to start up- if expensive break even may be difficult to achieve.
Share of the profits paid to franchisor.—this may demotivate to sell more or grow faster.


1 (a) (i) Identify TWO possible objectives of Bettabuild. [2]

Content: To make a profit; to survive; to expand/increase market share/ increase sales; to diversify;
to produce a quality product.

(ii) Would you advise the owners of Lopez to convert the business into a
Public Limited Company (plc)? Explain your answer. [8]

Content: Advantages of a plc - can sell shares to the public; which means large capital can
be collected quickly and at a better price.
rapid expansion possible with specialist managers appointed;
prepared and have the experience

easier to raise finance; A large business has more assets and better reputation in the market
and also advantages over smaller firms like they can enjoy economies of scale thus banks and
lenders may prefer larger forms as they are less riskier than smaller firms

high status; is well known do to Producing and selling in many markets

easier to attract suppliers.—as suppliers may find it less risky to supply goods to larger firms.

Disadvantages –

many legal formalities; -May take a lot of time and money which may discourage businesses
have to disclose accounts and other information to any interested parties; - hence
there is no secrecy of information hence competitors can use the data to their advantage.
expensive to ‘go public’;
divorce between ownership and control more likely— as the objectives of the one who run
the business may be different from the objectives of the owner


1 (a) (i) What two documents had to be drawn up when Lopez was registered as a
limited company? [2]

Content: Memorandum of Association and Articles of Association


1 (a) The owners of EKZ do not have limited liability. Explain what you understand by
this. [3]

This is where the owners of the business can be held responsible for the

debts of the business and lose their personal possessions.

(a) Why might groups other than the partners be interested in the accounts of S
and P Partners? (8)

The bank manager would want to see if the business had sound finances if it wanted an
overdraft or loan. To check if the business would be able to pay back the overdraft or loan.
The government would want to assess the tax due.
Potential investors would want to see the likely return on their investment.
Suppliers would want to see the assets of the business to see if they could sell these assets if
the business does not pay them.

1 (a) The Directors of EE recently converted the business from a private limited
company to apublic limited company. Explain two possible benefits and two possible
drawbacks to this business of the change. [10]

Can sell Shares to the Public :- able to raise large capital at a good price if the business is
profitable with a good past record and have a good future outlook.
As the business can raise large amount of capital :by selling shares to general public
specialist managers appointed; will be able to take better decisions
Suppliers will have more confidence to supply goods in the company which is listed as it has
many rules and regulations to follow laid down by the government.

Disadvantages –
many legal formalities;
have to disclose accounts and other information to any interested parties;
expensive to ‘go public’;
divorce between ownership and control more likely;
risk of takeover.

2. Business Organisations ( 3, 9, 10, 12)

(b) If EE took over Budget Deals they will need to raise finance for new delivery
lorries. Explain THREE sources of finance EE could use. [10]

Bank loan; Leasing; Hire Purchase; Retained profit;


(c) Outline the management responsibilities of Miguel as Lopez’s Marketing Manager.


Marketing manager is responsible for market research, to develop new products, know
the demand of the existing product
planning of new products,
deciding on the marketing mix, the Market research will help to identify the place at which
the product is to be sold , the price at which the product needs to be sold , the different
segments of the market, the type of promotion that may be required

evaluating sales data. The sales data can be used effectively to know which product is dong
well and which product is not. The data can be used to analyze a trend which may help in
forecasting and planning

Linked to the case - develop new sweets, market research in new country, research the
competition in other market, develop a marketing mix for the new products.


(c) Finance is needed for expansion. Would changing the business to a private
limited company be the best option to take? Justify your answer. (10)

.- Alternative types of business - plc sell shares to the public. But real possibility of loss of
ownership and control
Take on additional partners - raises capital but limited amount of money available however,
accounts kept private.
Take out a bank loan instead of changing business type - keeps accounts private but the money
must be repaid with interest.
private limited company being able to sell shares, but only to family and friends not to the
general public. / more capital / Limited liability

Evaluation of these alternatives in the context of the business: ( relation to the case study
shown )
Shama only has a limited amount of money available,
as there are only two partners. Reinvested profits might not be enough in the future if they want
expand quite quickly
They want to open 10 cafe bars, which will be expensive.
Limited company status would give them limited liability - this would be more important when
the business is larger.

4(a)(i) Desert Mining Ltd will need to relocate some of its workers if it opens a
mine in the remote region. List three ways in which this could be communicated
to staff. (3)

Content: Letter, notice board, telephone, face to face.


(ii) Explain each of these three methods of communication and advise the
business on the best one to use. (7)

Explanation of letter – written form of communication, permanent record but expensive.

Notice board – cheap to inform people and can inform a lot of people but can not guarantee
everyone has seen it
Telephone – expensive and time consuming but are sure all employees received the information
Face to face meeting – inform a lot of people at once but have they all understood?

Keeping the situation in mind face to face communication would be the best as the information is
sensitive and there could rumors and panic as who would have to be relocated. Face to Face
meeting would help the manager to assessing the situation as the body language of the people
is seen hence steps can be taken to make the impact of the information as small as possible by
answering the questions and reducing panic.

1 (a) Identify and explain two possible reasons why the managers of Desert Mining
Ltd might want to expand the business. (6)

• possibly higher profits for owners : Returns to the shareholders( reward for risk taking )
the reason for them to remain invested in business.
• more status and prestige for owners ( motivation to grow much faster and be the best in
the sector/ industry )
• lower average costs ( due to Economies of Scale as the business grows in size)
• controls a larger share of the market. : ( reduces the risk , few competitors )


(c) Identify two possible communication barriers with EKZ. [2]

examples might include - too many people to pass on the message, -- as the Chain of command
may be very long of the organizational structure

receiver does not listen- he may not believe the person or may not know the importance of
the information send
unclear message—due to wrong language and terms used / sound problems / unclear writing
technical breakdown – unable to send / convey the message
wide span of control—may not be able to personally tell to each person as many people are
under one superior
chain of command is long.- too many people to pass the message through

d) Discuss how EKZ could improve its internal communication. [8]

sender ensures message contains appropriate language,

sender ensures right person receives the message,
feedback should be given,
the appropriate channel should be selected,
the shortest possible channel should be used,
make sure the right channel is used,
importance of the message should be emphasized,
direct communication should be used where possible.

By insisting on feedback this allows the sender to check that the right
person received the message. However, the type of feedback will not always tell the
sender that the message has been understood. So this is a good way to improve
internal communication if there is a way of checking that the information has also
been understood as well as just saying that it had been received.

6 Suggest, with reasons, how the investment in new machinery could be financed. ?
Investment in new machinery likely to be significant outlay for long time period.
injection of cash by owners
retained profits
leasing of machinery
disposal of unwanted assets
internal generation of funds by better cash flow methods.

b) If the order is accepted, Patel Fashions will need to have good communications
with Nife’s head office which is in country X. Explain the advantages and
disadvantages of TWO methods of communication Patel Fashions can use to
communicate with Nife. [10]

Adv/Disadvantages: Email – cheap, quick to send, permanent record, can be sent to

many but do not know when communication has been received, may not be confidential.
Letter – can be kept confidential, permanent record, complicated details can be included
but no opportunity for direct feedback.
Telephone – information can be given quickly, immediate feedback but may take longer to
contact person, cannot see body language.
Videoconferencing/ Meeting – information can be given quickly, immediate feedback, can see
body language, (videoconferencing) may be cheaper than meeting in person but links are
(c) Outline what is meant by 'spans of control will widen and the chain of
command will lengthen' (4)

Span of control - the number of subordinates working directly under a manger will increase.

Chain of command - a structure within an organisation which allows

instructions to be passed down from senior management to the lower levels
of management will increase in terms of the number of levels messages
have to pass through.
3. Marketing ( 16-22)
4 (a) (i) Generation Elect intends to use the reservoir behind the dam to provide
either the hire of power boats or fishing equipment for the people of New City. Should
Generation Elect use primary research or secondary researchto find out which activity
will be the most popular? Justify your choice. [10]

Primary research –

advantages – provides detailed qualitative information,

consumers opinions can be obtained,
likes and dislikes about the product can be obtained,
information is up to date.

Disadvantages – questions may not be well thought out therefore answers will not be very
, time consuming,
interviewer bias could lead to not very accurate results,
people may not give real feelings so as not to cause offence.

Secondary research – advantages – a lot of information readily available,
can be cheap to obtain,
may not be time consuming.

Disadvantages – information may be out of date,

gathered for some other purpose,
information may not be accurate,
specialist market research agency sources of secondary information can be

(ii) Advise the Marketing Manager on alternative pricing strategies that could be
used for the new leisure activity. [8]

Cost-plus pricing – easy to apply and you are sure your costs are covered
but you could be undercharging and hence potential profit could be lost.

Competitive pricing – your prices are competitive and so sales might be high but
your competitors are not nearby and so you could charge higher prices and make
more profit.

Promotional pricing – this would encourage people to try the new activity but sales
revenue will be lower.

Penetration pricing – encourages people to try the new activity but prices are lower
and therefore sales revenue will be lower.

Psychological pricing – prices could be set high to encourage exclusivity of the

new activity but it could put people off using it. Price could be set at $….99 to
make people think it is cheaper than it really is.

2 (a) How do you think NP researched the market to estimate the number of copies
likely to be sold of each type of magazine? [8]

Primary research; questionnaires, interviews; consumer panels; testing.

Secondary research; company reports; newspapers; government data.

2 Miguel, the Marketing Manager, wants to develop a new range of sweets. These
would be sold in other countries as well as in Country A.

(a) (i) Explain why Miguel should carry out market research before developing a
new range of sweets. [5]

To find out the potential market so that they can develop an appropriate marketing mix.
To identify if there is sufficient demand to be worth selling in the other country.
To indicate the target market so that suitable advertising can be developed that will reach
these potential customers.

(ii) Advise Miguel on how to carry out market research. [6]

Need to design a questionnaire,

set a budget to carry out the research,
select the type of sample and sample size,
decide where to carry out the
collate the results.

Evaluation might be - the sample size needs to be as large as possible to make the results
more accurate;
the research needs to be carried out at a place and time so that the target market will be
available to answer the questions;
the cost of the research needs to be considered in relation to the accuracy of the
information collected.

(b) Discuss three factors that could influence the marketing for the new range of
sweets. [9]

the target market, laws

culture of the country,
production costs,
advertising budget,
disposable income.

Evaluation of how they could affect it - the target market would influence where the
sweets were advertised and how they were promoted.

Culture - would affect the type of products which could be developed and the style of
advertising that was used. Also the type of outlets used and the channel of distribution
would be affected by the culture and characteristics of the country.

Competition - would affect the advertising used, pricing policy and where they sold their
products in order to compete and be successful.


4 (a) Assume you are the Marketing Manager of EKZ. What changes would you
make to the marketing mix to increase sales? Justify your answer. [12]

Product - possibly increasing the range of products sold/deliver to small food shops
so that they will buy more frozen food.

Price - promotional pricing so that the small shops will buy more and it will help them
to be more competitive with the supermarkets too.

Promotion - currently sending out leaflets. Advertise in grocery specialist magazines

so that the target audience will see it. Promotional stands in the wholesalers to
promote certain product and give advice.

Place - this would seem to be alright. They are already part of a channel of

distribution. However, they could sell directly to some different customers.

(b) Why might prices in the small food shops be higher than in supermarkets? [4]

Overheads relative to turnover will be higher therefore,

to cover these costs, the shop will need to charge higher prices.
Costs of buying stock are higher as they cannot get bulk buying discounts,
which a large supermarket can benefit from.


(c) Outline two ways small food shops could compete with large supermarkets. [4]

By giving customer service, advice, credit, delivery.


(b) Explain a suitable marketing mix that Nife could use to sell these high quality
football shirts to customers. [10]

place sold in football club shops or expensive

sports shops or could be sold on the Internet;
price high price to indicate quality;
promotion emphasises high quality and advertisements in football magazines;
product is high quality and genuine article.


2 (a) If the large order is accepted from Nife, 75% of output will be for just one
multinational customer. Do you think it would it be wise for the company to depend on
one customer so much? Explain your answer. [10]

Advantages –
bulk order;
lower administration costs;
stable customer which is not likely to go bankrupt.

Disadvantages –
dictated to by large supplier;
if order is lost then major difficulties for business;
large customer may be slow to pay leading to cash-flow problems.
(a) The business currently uses wholesalers and supermarkets to distribute its
existing fruit drinks. Explain the possible advantages to the business of using
wholesalers in the method of distribution. (8)

Content: Producer – Wholesaler – Retailer – Consumer

Advantages of wholesalers discussed

breaking bulk,
storage provided,
advice given,

4 (a) Explain why the market research results were particularly useful to Garfred.[8]

Results were useful because they identified a gap in the market/showed

what particular features were valued by potential customers/

showed that the market was expected to grow/
showed that choice was limited/
indicated the retail outlets that young people use.

Thus, they allowed

Garfred to be market orientated and thus produce a product that was appealing,
at appropriate prices,
sold through distribution chains that were suitable.
All these factors should allow Garfred to launch his new product range successfully.

4 Dwight knew that it would be important to promote his business in order to attract
customers. State and justify the promotional methods you think he should use to attract
customers to his business.

4. Production ( 23-24, 6)

(b) A suitable location will be needed if Abdul decides to open the furniture shop.
Discuss the most important factors that will affect this decision of where to locate his
furniture shop.

Availability of suitable vacant shop.

What other shops are nearby – competitors/other shops which attract customers/busy retail area.
Availability of customer parking nearby.
Security of the area and shop.
Rent paid and other local charges.
Access for delivery vehicles.


(b) How useful would break-even analysis be to Abdul in helping him choose between the
two business options? Explain your answer.

It would help Abdul estimate how many sales each business would need to make to cover all the
He can compare the break-even point with the predicted sales for each business.
Help to estimate how much profit each business might make.
Help him to estimate how long it would take for the business to break even after starting up.


5 (a) NP will use flow production in its new printing factory. Outline two benefits of
using this method of production. [8]

Unit costs are kept low and therefore prices are also lower;
capital-intensive methods of production can be used reducing labour costs and increasing
efficiency; possibly less skilled labour required;
high output; continuous production;
standardised product;
advantages of division of labour/specialisation.


(b) Advise NP on what factors will be most important when deciding where in Country
X to locate the new printing factory. [12]

Market; Power; Government influence (regulations or grants);

Personal preferences of NP managers;
Availability of labour;
Transport communications;
Raw material sources;
Near to port;
External economies of scale;

Evaluation – Justification of why particular location factors might be important to a printing

works. E.g. the availability of skilled workers will be important, as the printing factory will
require a large number of employees to work on the printing machines.

(b) Why do you think that quality control is important to a company such as Lopez?

To reduce wastage and defects as this will cost the business money.
To check that products meet minimum standards to comply with the law so that the business
does not face prosecution.
To ensure products are not faulty because if faulty products are sold it will give a bad impression
to customers and the business will get a bad reputation.
This will probably result in lost sales.


(b) EKZ plan to open a new wholesale outlet. Discuss the factors that might affect
this location decision. [12]

Factors affecting location decisions such as

nearness to - ports,
small retail shops;
transport and communication;
availability of power;
government influence (regulations or grants).

For example: The wholesaler needs to be near small food shops or transporting goods could be
more expensive.
Small shop owners may not travel far to buy their goods so if the wholesaler is not nearby then
they would not make many sales.
This factor is therefore very important when making a location decision.


3 (a) Nife are only interested in purchasing high quality football shirts. How would
you advise Patel Fashions on how they could make sure that its football shirts are of
high quality? [10]

Quality control involves checking garments at the end of the process (or part way through) to
make sure that there are no defects.
If there are defects then the production can be stopped and the fault corrected.

Quality assurance (e.g. TQM) is where all employees are engaged in the checking of garments
to make sure each stage of the process has no faults.
Any errors can be corrected immediately before the garments are finished.

(c) Patel Fashions are thinking about changing from labour-intensive to

capital-intensive methods of production.
Do you think Patel Fashions should introduce capital-intensive methods of
production? Explain your answer. [10]

Advantages of capital-intensive –
increased productivity;
greater output;
improved quality;
lower cost per unit.

Disadvantages –
cost of equipment;
cost of making workers redundant;
increased training costs;
more skilled workers required;
may be reduced morale.

(a) What is meant by batch production (line 9)? (2)

Products are made in batches of a certain quantity, usually as orders come in.
Each stage of production of a certain quantity is completed before moving on to the next stage.


What economies of scale will the business experience

Economies of scale refer to cost advantages associated with size.

Unit cost falls as the size of output increases.

Content to include reference to things like

mass production techniques/
bulk purchases of raw materials from suppliers/
distribution economies/
financial factors/
managerial factors.

5. People and Work ( 11, 13,14)

3 (a) Generation Elect will need to recruit construction workers to build the dam.
Outline the recruitment and selection process Generation Elect will need to
follow to employ these workers. [6]

Job analysis,
Job description,
Job (person) specification,
Job advertisement,
send out application forms/CV & letters of application,
select the best
applicant/send out letter to make job offer.
Use of recruitment agency.
(c) All skilled construction workers in Country X are members of a Trade Union. Do
you think this is an advantage to Generation Elect? Explain your answer. [8]

Easier to negotiate with a Trade Union representative than all the workers individually;
better relationship between employer and employee if work together;
disputes can be solved more quickly;
easier to agree changes in working conditions;
less time wasted in arguments;
fewer industrial disputes if better relationship between management and employees.
These could be the reverse arguments as disadvantages to the business.

5 (a) Abdul will need to employ sales staff if he opens the furniture shop. Advise
him on the best ways to recruit and select new staff.

Job analysis (to decide the requirements of the job)

job description (outlines the duties that the job involves) –
Job (person) specification (outlines in detail the type of person who is qualified to do the job) –
advertise the vacancy (where to place the advertisement to be decided)–
send out application forms (for applicants to fill in and return giving the required personal
short list (from the applications a short list will be produced of those best matching the job
interview (different techniques can be used to select the best person for the job).


(b) To be successful the furniture shop will need motivated sales staff. Advise Abdul on
how he could motivate his sales staff.

Financial – commission, profit sharing, bonus, performance related pay.

Non-financial – discounts on firms’ products, health care paid for, free accommodation, pension

Praise for a job well done,

job rotation, job enlargement, job enrichment.

Motivation theories might be included in the answer e.g. McGregor, Maslow, and Taylor
should be rewarded.


(b) EE provides training to its staff. Analyse the benefits of this training to customers
and employees of EE. [8]

Benefits to customers –
more informed sales staff give better advice;
more likely to be sold a product that suits their requirements.

Benefits to employees – greater job satisfaction; more motivated; more sales may increase bonus

3 (a) Explain the problem that Bettabuild might experience from a high level of skilled
labour leaving each year. [10]


Cost of advertising for new employees;

cost of training new employees;
production problems if staff leave suddenly;
morale low for existing employees.

(b) Bettabuild wants to reduce this level of labour turnover. How would you advise
Bettabuild to reduce this level of staff leaving? [10]

Increase wages;
change to piece-rate;
increase fringe benefits;
give longer holidays;
provide safer working condition;
introduce worker participation;

introduce job enlargement.


4 (a) If Lopez expands, they will need to recruit an additional member of staff for
the sales department. Draw up a job description for this post. [6]

Job description should contain

job title,
responsible to,
responsible for,
main purpose of job,
main duties,
occasional duties.

Applied to the case - might include duties such as deal with customer queries, take
orders, fill in order forms.


(c) A new Sales Manager has just been recruited. Discuss how Jennifer and Miguel
could motivate this new manager. (You should include both financial and non financial
methods in your answer). [10]

Financial –
profit sharing,
performance related pay.

Non-financial –
children’s education fees paid,
discounts on firms products,
health care
paid for, company vehicle,
free accommodation,
share options,
pension paid,
free trips/holidays abroad.

Motivation theories might be included in the answer e.g McGregor, Maslow, Taylor.

Evaluation – If the Sales Manager is well paid and so recognition for a job well done
might prove to be more of a motivator according to Maslow. However, the manager is
responsible for sales and so if they were paid a commission related to the amount of
sales then this should motivate them to make more effort to sell more. This would
probably be the best method to use because of this.


(b) Why do you think most of Desert Mining Ltd’s workers belong to a Trade
Union? (6)

• to give strength in numbers

• to get improved conditions of pay and hours of work
• to gain an improved environment such as Health and Safety and noise
• to improve job satisfaction by encouraging training
• to gain advice if a member thinks they have been unfairly dismissed.

Evaluation of the reasons e.g.

Strength in numbers will mean that the mineworkers can all threaten to strike and the employers
will be more likely to give in to their demands than if just one worker asked for a pay rise AND

improved pay and conditions will mean that the mineworkers will work in better conditions
and possibly have more holidays and more breaks
(b) Explain how the introduction of new machinery could affect the workers in
this company. (10)

Explanation of the effects of the introduction of new machinery:

• new machinery may result in some employees losing their jobs

• training may be required
• employees may have a pay rise due to increased productivity
• some employees may have promotion

Evaluation of these effects:

• loss of jobs may mean redundancy/retrenchment payments need to

be made
• increased cost of training for the HR department
• pay rise and promotion may lead to increased motivation


(d) Several new employees need to be recruited. Would you advise Shama to
use internal recruitment or external recruitment for managers of the cafe
bars? Give reasons for your answer. (6)

Internal recruitment - vacancy filled by an existing employee.

External recruitment - vacancy filled by someone new to the business.

Discussion and evaluation of which method would be best:

External would bring in new ideas but internal would be motivating for existing staff.
Internal already know the employees reliability whereas
external the people are completely new.
Internal is often quicker and cheaper.


6. Business Finance and Accounting

5 (a) (i) Using the information in Appendix 3, explain the difference between fixed
costs and variable costs. [4]

Fixed costs are costs which do not vary with output

Variable costs vary with output

(b) Managing the finances of a rapidly growing business is very important. Why do you
think Sheena, the Finance Manager, is concerned about Bettabuilds’ cash flow?
Explain your answer. [12]

Expansion requires large cash outflows for equipment and this needs to be financed.
If it is financed by loans there will be cash inflows but also repayments going out.
Cash inflows will be slow to flow in as it takes time to build new houses,
hence large amounts of cash flow out and it can take a lot of time before cash flows back in.

(b) (i) Refer to Table 2 and Table 3. Explain what Jennifer meant when she said
cash flow is still a problem for the business. [6]

Cash flowing out of the bank account and not flowing back in quickly enough.
This leads to a lack of cash for the business.

Evaluative comments might include –

runs out of cash and cannot pay creditors

therefore they cannot produce any more products if creditors will not supply them with raw
They may need an overdraft and then they will be charged interest.
This will increase costs which could lead to lower profits.


(ii) Advise Jennifer on how she could improve the company’s cash flow. [10]

Delay payments to creditors and try to speed up debtor payments.

Increase sales revenue to increase the inflows of cash.
Lease rather than purchase when buying new capital to spread the payments.

7 . External Influences
2 (a) (i) Distinguish between social (external) costs and social (external) benefits. [4]

Social cost is the total cost to society (1) as a result of a business decision (2) (accept private
costs + external costs)

Social benefit is the total benefit received by society (1) as a result of a business decision (2)
(accept private benefit + external benefit)
(ii) State two examples of social (external) costs of the dam. [2]

Costs – destroy agricultural land; food production reduced; increased cost of

imported food; people forced to leave their homes; increased pressure on the area
where people move to; pollution.


(iii) State two examples of social (external) benefits of the dam. [2]

Benefits – economic growth; increased business for importers; leisure facilities

provided on the reservoir; fewer power cuts; increased employment.

(b) Using all of the relevant information available to you, discuss whether or not the
building of the dam will be beneficial to Country X. [12]

Advantage – no power cuts so business can keep producing their product;

increased profits as output will no longer be lost through power cuts;
economic growth in Country X as output will be higher; depreciating exchange rate would be
beneficial to
exporters as their goods may now have lower prices abroad.

Disadvantage – may need to increase food imports leading to depreciating exchange rate;
increased pressure on other areas as people move from land around the dam and
this may lead to rising house prices, overcrowding in schools, etc.
Environmental damage on the area around where the dam is being built as this is an area of
beauty and habitat for wildlife.

Application e.g. – growth;

employment; city;
exchange rate;
imports of food;
leisure facilities;
raw materials required for building the dam;
skilled workers; power cuts.
Do not reward ‘dam’ as it in the question.

(b) Governments often help new businesses to start up. Explain why the government of
Country X might help Abdul to start his business.

To encourage job creation as unemployment is a problem.

To help more businesses get started to encourage further economic growth.
Increased taxation and decreased government spending on welfare payments.


1 (a) Explain two advantages to NP of being a multinational company. [8]

Can sell to a wide market;

low labour costs;

spreads risk;
avoid trade barriers;
easier access to finance;
economies of scale;
international reputation.

2 (a) If several new coal mines open, what might happen to the price of coal on
international markets? (6)

New mines opening means increased supply on world markets leading to lower prices.
The extent of the price fall depends on the price elasticity of demand for coal.

Demand likely to be inelastic as there will be few alternatives to coal and therefore the price fall
will be by a greater percentage then the increase in supply

4 (a) Explain, using examples of social costs and social benefits, how the government could
use Cost Benefit Analysis (CBA) to help it decide whether to allow a new shopping centre to be
built. [10]

Social costs could include

loss of farming land, destruction of wildlife habitat,
increased congestion,

Social benefits could include reduced unemployment,

improved road system.
CBA allows all these external costs and benefits to be taken into account when making a

Private sector business wouldn’t take these into consideration.

The effects on society are therefore taken into account.
There are difficulties when assigning money values to external costs and benefits.

(b) Consider the advantages and disadvantages to a business, such as Bettabuild, of

government laws and regulations. [10]

Advantages could include

makes competition fair,

makes all businesses use fair work practices,
restricts foreign competition,
ensures quality raw materials are sold,
provides laws to sue other business or customers if they don’t pay.

Disadvantages could include

have to meet regulations on health and safety which could be expensive,

have to comply with planning regulations and may not get permission to build,
have to ensure advertising is truthful.


3(a) What is meant by (i) social costs and (ii) social benefits? Include examples
that might arise from the development of a new mine. (8)

Social costs are the costs paid by the rest of society, rather than the business, as a result of a
business decision. Also known as external costs because they are the costs paid by the rest of

Social benefits are the gains to society, resulting from a business decision. Also known as
external benefits.
Examples from the case study:

destruction of area of natural beauty,
loss of home for rare animals,
destruction of environment.

unemployment falls,
incomes rise so will create spending in associated businesses.

(b) Should the government in Country B control business activity? Give

reasons for your answer. (12)

Possible reasons for government control of business activity:

• responsibilities of employers – working conditions, Health and

Safety – protection for the mineworkers

• responsibilities to the natural environment – pollution – try to stop

the destruction of areas of natural beauty and the habitat for wildlife

• location decisions – influence where businesses choose to locate –

not particularly applicable in this case but they might stop mines
being opened.

5 (a) The exchange rate has changed between 2003 and 2004. Explain what effect
might this have had on EKZ. [6]

2004 2003
$1:3Euros $1:2 Euros

For example: The currency appreciated which means import prices are cheaper and
export prices will be more expensive abroad. EKZ will be able to buy their food from
abroad at a cheaper price. They could then sell this food for a cheaper price to their
customers making them more competitive or they could keep prices the same and
increase their profit

(c) Discuss how EKZ might be affected by government controls on business

activity. [12]

possible reasons for government controls on business:

Protection of employees - working conditions, H and S, minimum wage.

Location decisions - influence where businesses choose to locate, planning controls.
To protect consumers - goods should be safe to use, goods should be accurately described in

For example: Government controls the sale of food to ensure consumers are protected from the
sale of contaminated food which could cause illness.
This means EKZ must check their food to ensure that it is kept at the correct temperature.
This is so food does not go bad. EKZ will need to employ people to check the temperatures of the
fridges and freezers and keep the equipment in good working order,
Which may be expensive

5 (a) The Government wants to encourage more multinational companies to come to

their country Y. Do you think the Government is right to do this? Explain your answer.

Advantages of multinational business –

new investment;
more exports;
fewer imports;
jobs created;
more competition;
taxes paid to the government.

Disadvantages of multinational business

existing firms in danger;

profits flow out of the country;
often only unskilled jobs are created;
influence the government and economy.

(b) Explain why the trade unions might be against the changes in employment laws
proposed by the government in country Y. (See Appendix 3) [8]

Make conditions of employment worse for employees;

wages may be lowered;
easier to sack workers;
Health and Safety may be worse;
workers have less protection.

7 The government in Garfred’s country has recently introduced new laws aimed at
protecting consumers.

(a) Do you think that consumers need protecting from some business activity? Explain
your answer.

Protection against things like misleading advertisements

false price cuts/
contents underweight (or fabrics not as stated)
unfair or unethical business practices.
Unable to verify accuracy of information themselves.

(b) Outline how such laws might affect Garfred’s marketing policies.
May have an effect on their advertising claims.
Must clearly follow the laws, e.g. goods of merchantable quality/fit for purpose, etc. (refunds)/
fabric content.