CAMBRIDGE INTERNATIONAL AS & A LEVEL BUSINESS: TEACHER’S RESOURCE

Exam-style questions and sample answers have been written by the author. In examinations, the way marks are awarded may
be different.

Workbook answers
Answers to questions that ask for ‘one or two’ points, reasons or impacts may contain more than the
required number of points, indicating that alternative responses exist that could be equally valid. The
suggested answers to questions that are testing the skills of analysis and evaluation, apart from the worked
examples and the ‘improve this answer’ examples, are in a ‘building block’ form. This means they provide
an outline of the key knowledge, application, analysis and evaluation skills required to help learners
construct a complete answer. For further details of the annotation used in some of the completed answers,
refer to the ‘How to use this book’ section.

Chapter 2
Key skills exercises
1 Learners’ answers will vary (e.g. coal mining; forestry; fishing).
2 Learners’ answers will vary (e.g. computer assembly; shoe making; bread baking).
3 The tertiary sector provides services to other businesses and consumers; the quaternary sector provides
IT-based information services to other businesses (so quaternary is part of the tertiary sector but
specifically provides IT services).
4 Public transport; postal service; public libraries.
5 In the private sector – they are not owned by the state.
6 If a limited company fails, the owners of the limited company are only liable to lose their
original investment.
7 Because it is still owned by one person.
8 All partners are able to contribute their capital as finance for the business. Partners might bring
different skills and experiences to the business.
9 A public limited company is able to sell shares to the public to raise capital. Shareholders are
encouraged to invest because they can sell their shares easily as the companies are ‘listed’ on the
stock exchange.
10 Disadvantage: Less control than if the business was completely independent.
Advantage: Support of a much larger business (e.g. in marketing the business).
11 Learners’ answers will vary (e.g. profit; social aims; environmental aims).
12 Learners’ answers will vary (e.g. agricultural cooperatives; retail cooperatives).
13 Cooperatives are owned by members, not by shareholders/investors. Cooperatives aim to benefit
their members, not primarily make a profit (which is one of the common aims of other forms of
business ownership).
14 Economic growth is being achieved through industrialisation (expansion of the secondary sector),
which usually has higher value added than the primary sector. Rising incomes help to explain the
increasing importance of the tertiary (services) sector.
15 One consequence could be unemployment in secondary sector industries, resulting in the need for
training programmes to allow unemployed people to find employment in the expanding tertiary/
quaternary sectors. There may be more job opportunities for female workers as the tertiary sector is
growing in importance.

1 Cambridge International AS & A Level Business – Stimpson © Cambridge University Press 2021
 CAMBRIDGE INTERNATIONAL AS & A LEVEL BUSINESS: TEACHER’S RESOURCE

16 Gill seems to be dependent on her own savings for replacing capital equipment.
17 WE. Gill is planning to expand her business by buying/renting additional storage space for materials.
This will need finance and Gill may not have enough savings, so a partner will bring finance into
the business.
A partner will share some of the workload with Gill (e.g. selling dresses in the markets) to give Gill
more time to make the clothes.
18 It is in the private sector because it is not owned by the state.
19 It is in the secondary sector because Gill converts material into finished dresses, which is a
manufacturing activity.
20 Gill is no longer completely independent. Maria will expect a say in making decisions, especially as she
knows a lot about fashion.
21 WE. The benefit would be that both Gill and Maria will have limited liability. Maria plans to put a
substantial amount of capital into the business. Gill and Maria would benefit from only risking the
capital they have invested in the business. This would protect their other assets from being liquidated if
the business fails and could encourage them to invest more into the business, leading to further expansion.
The drawback could be that the partners will have to disclose and publish accounts of the dressmaking
business and they might not want to make public how much profit they make.
22 Outline: Use the answer to Q21 as the basis for this answer, adding at least one paragraph to explain
why the pair should form a private limited company or not. It could depend on whether Gill and
Maria have plans for major expansion; whether they are prepared to risk losing all of their personal
assets if the business fails; whether continuity is important to either of them if the other one dies.
An overall conclusion is necessary.
23 Outline: Define joint venture. Analyse the benefits (e.g. acting with a specialist retailer): marketing
would be less of a problem for Gill and Maria; the risks and cost of the venture would be jointly
undertaken. Analyse disadvantages (e.g. shared control might lead to problems such as who would
decide on pricing and other marketing issues). Consider whether Gill and Maria have the production
capacity to produce the dresses required. An overall conclusion is needed.

Exam-style questions
Short answer questions
1 Primary sector business activity comprises extraction industries; tertiary sector business activity
comprises services providers to businesses and consumers. Include examples of both.
2 Outline: Learners’ answers will vary (e.g. a franchise gives the entrepreneur setting up a new business
an established brand name and product range, which might increase the chances of the business
being successful).

Essay questions
1 a Outline: Identify and analyse two benefits of taking on a partner (e.g. a new partner can
bring more capital into the business which will help finance growth); growth of a sole-trader
business is limited by the financial resources (savings) of just one person. A partner may have
different management skills and experience to the sole trader and this will help when taking
business decisions.
b Outline: Analyse the advantages of public limited companies compared to private limited
companies. Analyse why owners of a private limited company might not consider converting the
business to a public limited company. For example, a small family business might want to keep
control; because there is no need for additional capital as the aim is not to grow, so there is no
need to risk losing control. An overall conclusion is needed, probably suggesting that the statement
is only accurate if major expansion plans that require substantial finance are being considered.

2 Cambridge International AS & A Level Business – Stimpson © Cambridge University Press 2021
 CAMBRIDGE INTERNATIONAL AS & A LEVEL BUSINESS: TEACHER’S RESOURCE

Data response questions

a i Businesses owned by private individuals, not by the state.
ii The only liability, or potential loss, a shareholder has if the company fails is the amount invested
in the company, not the total wealth of the shareholder. This encourages people to become
shareholders and invest in companies.
b Outline: Explain two ways (e.g. an insurance company would provide cover for expensive jewellery in
the shop; a bank would provide the finance and banking services required by a shop).
c Outline: Analyse two problems (e.g. the cost of legal conversion of the business would have to be less
than the additional capital raised to make the conversion worthwhile); disclosure of information
(e.g. annual accounts); Cassy and Sajiv would have to agree on the roles of each of them as directors;
Sajiv would own more shares than Cassy, giving him more control over decisions.
d See ‘Improve this answer’.
Improve this answer
This is an improved answer for data response Qd. The additional skills have been annotated.
A franchise means buying a licence to trade under the name of another business. If this business is well
known with a good brand name, it can reduce operating risks. This is because consumers will already
know about the business and its products, and this might reassure them [An]. MGC is a large company
and appears to have a good brand name. This will mean that marketing costs for Cassy and Sajiv might
be quite low as the business and its products are already well recognised. So Cassy and Sajiv would not
have to spend much on advertising as customers will already know about MGC jewellery designs. Lower
advertising and promotion costs, because of the well-known brand name, will help to make the franchised
business more profitable [An+].
Risks will be reduced as MGC will have much experience in operating retail stores and will be able to pass
this on to Cassy and Sajiv. They are both ambitious and want new challenges. Setting up a new shop and
making well-known jewellery designs will give them these challenges. The franchise is likely to be very
profitable but Cassy and Sajiv need to check on this by asking if they can inspect the accounts of other
MGC franchise operations. This will indicate to Cassy and Sajiv whether they will make more profit from
a franchised shop or from their own existing operation [An]. This is a very important factor because,
before taking a franchise, the expected profit for the franchisee must be considered and compared with the
opportunity cost [E].
The cost of the licence is high. Cassy and Sajiv need to compare this cost with the likely sale price of their
existing business. If the sale of C and S Gems raises more than the cost of the licence, buying the franchise
could be a good decision [Ap/E].
Perhaps the most important factor to consider is how much Cassy and Sajiv want to keep their complete
independence over business decision-making. If they do, then they would be advised not to take up the
franchise as they will lose some decision-making powers, such as decisions over products, marketing
and pricing [E+].

3 Cambridge International AS & A Level Business – Stimpson © Cambridge University Press 2021