SECTION 1: Multiple-choice questions

Each question has ONE correct answer. 6 This week, a flower-selling company sells
50 plants for US$5 each and 100 plants for
-1 Which of the following is NOT included in a
US$2 each. What is the company's AVERAGE
deed of partnership?
REVENUEfor the week?
a The responsibilities to be carried out by
a US$2.00
each partner
b US$5.00
b Each partner's investment in the company
c US$3.50
c How profit may be shared between the
partners d US$3.00
d How much each partner must earn in 7 According to economic theory, how might a
revenue firm maximise profits?
2 Which of the following may be a benefit a Sell as much of the product as possible, at
to a multinational corporation of moving a range of prices
production away from its home country? b Sell where there is the biggest difference
a A wider market to sell products to between costs and revenue
b Lower production costs c Sell at the lowest possible price to increase
demand
c Better communication within the business
d Sell at a price just below that of the
d Lower marketing costs
competition
3 A sole trader sells doughnuts from a market
8 Which of the following is most likely to be a
stall for US$l each. The stall costs US$20 to
capital-intensive business?
rent and each doughnut costs US$0.30 to
make. If she makes and sells 100 doughnuts, a A car factory
what will the AVERAGETOTAL COST be? b A hotel
a US$0.50 c A school
b US$0.30 d A restaurant
c US$0.20 9 Which of the following is NOT true in the
d US$1.00 economic model of perfect competition?
4 Which of the following is a benefit of limited a Companies produce identical products
liability to shareholders? b Companies charge different prices to
a Only a fixed amount may be invested by different consumers
each individual c There are many buyers and sellers of the
b Dividends are paid on each share owned product
c Personal assets do not have to be sold to d Companies make normal profit in the long
pay company debts term
d Shares may be bought and sold on the 10 Which of the following is a disadvantage of
stock exchange monopoly power to consumers?
5 An external economy of scale may be: a Advertising expenditure is high
a Low costs due to bulk buying b Economies of scale are unlikely
b Lower interest on bank loans c There are barriers to entry into the
industry
c Training courses at local colleges
d Prices may be higher
d Product diversification
SECTION 2: Structured questions

Penelope is a sole trader who has recently set up c Calculate Penelope's profit or loss if she
a small pizza takeaway shop in a popular tourist produces and sells (i) 120 pizzas and (ii)
town. At present she runs the shop on her own, 175 pizzas in a week. (6)
but the hours are long and she has not taken d Calculate and comment on Penelope's
a break for the last 18 months. The business is average fixed costs for the output levels. (6)
seasonalto some extent, but the town attracts
visitors all year round, so she does not want 3 Penelope is trying to decide whether to expand
to close the shop for a holiday period, as she her business by forming a partnership with her
feels she may lose businessto one of her many friend, or to start a private limited company.
competitors. Penelope is considering going into She needs to consider the advantages and
partnership with a friend who has recently lost disadvantages of both options.
her job as a chef and is willing to put money into a Explain ONE advantage and ONE
the pizza business. Penelopewould like to expand disadvantage to Penelope of expanding
and open another takeaway shop or a restaurant. her business by taking on a partner. (4)
Penelope has spoken to a businessadviser,who b Explain ONE advantage and ONE
has suggested that she also considers the option disadvantage to Penelope of expanding
of forming a private limited company. her business by starting a private limited
Her business costs and revenues are as follows: company. (4)
c Penelope needs to measure the size of her
Rent of shop US$250 per week
business in order to give information to
Penelope's wage US$150 per week prospective investors. Identify and explain
TWO possible ways she could do this and
Business rates US$140 per week
decide which would be the best. Justify
Electricity bills US$30 per week your decision. (6)
Marketing leaflets US$10 per week d Referring to the information in the case
and your answers to 3a and 3b, discuss
Pizza ingredients US$2.50 per pizza the best way for Penelope to expand her
(average)
business. Justify your decision. (6)
Pizza boxes US$0.30 each
4 Penelope's major competitor in town is the
Selling price of pizzas US$7.50 (average) branch of a major multinational pizza takeaway
and delivery company. This company sells
1a Define fixed costs and give two examples
pizzas at an average price of US$6.50, due
from Penelope's business. (4)
to economies of scale in the production and
b Define variable costs and give two marketing costs achieved by the large company.
examples from Penelope's business. (4)
a Explain what is meant by economies of
c Identify and explain TWO advantages to scale and multinational company. (4)
Penelope of operating her business as a
b Identify and explain TWO likely examples
sole trader. (6)
of economies of scale in this type of
d As a sole trader, Penelope has unlimited business. (4)
liability. Explain what this means and how
c If Penelope reduces the price to US$6.50
it may affect Penelope's future plans for
in order to compete with the multinational
her business. (6)
company, explain what may be the
2 a Calculate total fixed costs for Penelope's implications for her sales, profits and
business for one week. (4) future plans. (5)
b Calculate Penelope's total variable costs if d Evaluate the view that 'local businesses like
she produces 50 pizzas. (4) Penelope's are likely to remain small'. (7)
Total: 80 marks
SECTION 3: Analysis and critical evaluation

Country B is a medium-sized developed nation, whose economic

and business environment is dominated by tertiary businesses,
many in banking and insurance. The public sector in the country
is also very important, as tax rates are high and welfare benefits
very generous. The government provides a wide range of health
and education services and promotes high public awareness of
healthy eating and environmental issues. Taxation on products
such as cigarettes is high, leading to high prices, but this has not
reduced demand to any great extent.
• The population is fairly static, only growing at approximately 0.2
per cent a year; there is a net emigration to other countries of
young professional workers seeking high-paying jobs elsewhere.
• The unemployment rate is low and there are unfilled job
vacancies for low-skilled workers in the public sector.

• Consumers are increasingly demanding healthy food products

and there is an increasing interest in energy-saving products,
such as light bulbs .
• The government of Country B has recently decided to subsidise
IT training for older workers, via a public sector training agency.
• Energy is becoming a major issue as the country is reliant on an
unreliable neighbouring nation. The government is considering
a plan to build a nuclear power station, with the potential
capacity to supply the entire country's needs.
1 a Explain what is meant by public sector and give an example
from the text. (2)
b Explain why 'net migration' may lead to a 'static
population'. (2)
2 a Suggest ONE example in the text of a change in consumer
demand. (2)
b Illustrate your example for (i) with a supply and demand
diagram, clearly labelled with change in price and quantity.
(2)

3 Discuss whether the government provision of essential services

will always lead to the best-quality service for the population of
Country B. (5)

4 a Explain, using a diagram, why high taxes should lead to a

decrease in quantity demanded for a product or service. (2)
b Discuss the possible reasons why high taxation may not
have led to a decrease in the consumption of alcohol and
cigarettes. (5)

5 Using the example of government provision of training and

education in Country B, explain why this is an example of
intervention to correct market failure. (5)
6 Using information from the text and the concept of social costs
and benefits, discuss the development plans for the nuclear
power station in Country B. (7)
Total. 32 marks