1.

1 Enterprise

Ideas for answers to progress

questions
1 Capital goods are items such as machinery and equipment that a business
continuously needs in order to produce goods and/or services. Final products
are items bought by the final consumer, often members of the public.
2 Examples of final products could be anything used by final consumers such as
petrol for private cars, food bought in shops, telephone services for private use.
3 Examples of intermediate goods would be any product or service traded B2B
(business to business) for further use in production. These could include:
timber bought for making furniture, materials bought for making dresses,
components bought for manufacturing a car.
4 A transport business makes a packet of tea more valuable by transporting
it from the manufacturer or warehouse (where it is of little use to the final
consumer) to the shop where the final consumer can buy it.
5 Value added is measured by taking the value of all of the inputs (usually the
cost) from the value of the processed product (usually the price).
6 Opportunity cost is the benefit foregone when a decision is taken. So, for
example, if I buy a new car I have lost the interest I would have got if I left the
money in the bank earning interest.
7 Answer depends on the decision chosen. Discuss this with your colleagues!
8 “Entrepreneur” is a person who is prepared to take the risk of engaging in a
business enterprise.
9 Qualities you would expect an entrepreneur to have include (choose any three):
u Innovation: Important because successful businesses often require
new ideas
u Persistence: It is difficult to get a new business going and there may be
many setbacks to overcome
u Leadership: Business enterprise will not happen nor be successful without
good leadership
u Risk taking: Most business enterprises involve taking risks so entrepreneurs
need to be able to recognise risks and be prepared to take them.
10 Entrepreneurs usually have to take risks because the outcome of their
decisions is often unknown. It may not be known whether there is a market
for a new product/service, or precisely what the costs will be, or whether
competitors might bring out a better product/service and so on.
© Oxford University Press 2015: this may be reproduced for class use solely for the purchaser’s institute 1
11 “Social enterprise” is a term that covers a business that looks beyond making a
profit as an objective. It may aim to help people or to improve the environment.
Social enterprises have a “triple bottom line” – People, Planet and Profit.
12 “Social enterprises” have an overriding objective which is not profit driven in
contrast with traditional businesses which usually have “profit” as a central theme.
13 “Triple bottom line” is a term used to describe the three themes of social
enterprises: People, Planet, Profit.

Ideas for answers to case study

questions
Sadie’s new business
1 Ideas include: freedom, being her own boss, finding productive use of her savings.
2 Getting customers, setting right price, advertising, negotiating/buying
equipment, supplies.
3 Plans for setting up the business, keeping track of customers/orders, keeping
track of money, monitoring work progress.
4 Failure, getting no return on investment.

Some facts about chocolate

1 There is a great deal of value added between growing the bean and selling
the chocolate.
2 Because of all of the other businesses involved in adding value.
3 See answer to Question 2.

Jumpstart Our Business Startups Act (JOBS)

1 Less risk, better guarantees, known history.
2 Small businesses will employ more people.
3 Increased production, increased spending by employees, innovation.
4 Banks may not lend, other sources of finance limited.
5 Concern about increased competition, unfair competition.

Social enterprises in Africa and South Asia

1 For future investment, growth.
2 Employment, services to the community.
3 To grow, make a profit, attract savings.

Ideas for answers to exam-style

questions
1 Issues a new business might face in its first year of trading include:
uuLack of finance
uuLittle income
2

© Oxford University Press 2015: this may be reproduced for class use solely for the purchaser’s institute
 uuHigh set-up costs
uuOther expenses
uuNo reputation
uuUndeveloped management skills
uuNew staff
uuUnestablished market
uuUncertainties.
Particular issues facing a clothes shop:
uuChoice of market
uuChanging fashions
uuNeed to carry wide range of stock
uuDifficulty attracting customers away from other clothes shops
uuNo brand loyalty.
Discussion of which are the most important issues (you would not be expected to
cover all of the issues).
2 Someone about to launch a new business would need to consider:
uuThe meaning of profit
uuThe role of the entrepreneur
uuThe issues involved in starting a new business
uuThe role of objectives which may or may not be profit, indeed they could
be survival to begin with
uuThe likely objectives for a new business
uuThe change of objectives over time and the role that “profit” has in that.
Considered view as to whether or not profit is the only interest of an
entrepreneur.
3 Answer should discuss:
uuExplanation of an entrepreneur
uuThe various roles of an entrepreneur
uuParticular business issues in the chosen country
uuHow an entrepreneur fits in to these issues
uuA judgment of the extent to which the role is important.
4 The benefits of new business start-ups:
uuWhat is involved in a business start-up
uuBusiness conditions in the chosen country
uuThe impact of business start-ups in the country
uuA judgment of the extent to which these are beneficial a) to the business,
b) to the country.

© Oxford University Press 2015: this may be reproduced for class use solely for the purchaser’s institute
 1.2 Business structure

Ideas for answers to progress

questions
1 Examples of businesses in the primary sector include: oil exploration
companies such as BP, Exxon, Shell; farming businesses, fishing businesses,
mineral extraction businesses such as RTZ.
2 The public sector covers activities owned and managed by the government.
The private sector covers activities owned by private individuals.
3 In most countries, supermarkets are not owned by the government so are
privately owned. Therefore they are in the private sector.
4 Advantages of operating as a sole trader include (choose any two):
u Easy to set up
u Easy to manage
u Owner has freedom to manage everything
u Decision-making easy
u Owner keeps all of the profits.
5 A sole trader business is owned by one person. The owner can employ as
many people as he/she likes and this will not affect ownership.
6 Unlimited liability means that the owner is personally liable for any debts
that the business might incur and the owner risks losing everything if things
go badly wrong. This is a problem for the owner as it is likely to limit the
risks that the owner will take with the business, and will limit the amount of
personal finance that the owner will put into the business.
7 Advantages of becoming a partnership include (choose any three):
u Greater access to a variety of skills
u More capital can be injected by partners than is the case with a sole trader
u Workloads and responsibilities can be shared between partners
u Decision-making can be shared so could be better
u Responsibilities including possible losses are shared.

© Oxford University Press 2015: this may be reproduced for class use solely for the purchaser’s institute 1
8 Disadvantages of becoming a partnership include:
uuUnlimited liability is an even bigger risk as it includes consequences of
actions of all of the partners
uuProfits shared amongst a greater number, although profits might be
expected to be bigger
uuDecision-making could be more difficult.
9 Professional businesses are often partnerships because:
uuBusinesses like accountants, solicitors etc. require a greater range of skills
and expertise than one person can have or manage
uuLiability could be larger than one person might want to carry.
10 Limited liability is important in helping businesses to grow. Without limited
liability, risk to owners is high meaning owners, and others, are unlikely to invest
large amounts for fear of losing personal possessions such as houses. With limited
liability owners are only likely to lose, at most, the investments they put into the
business. Owners, therefore, are more likely to expand and grow their business.
11 The term “company” refers to any incorporated business – a business with
limited liability. Partnerships are usually unincorporated so should not be
called “company”.
12 Disadvantages of being incorporated include loss of some of the benefits of
being unincorporated:
uuLoss of freedom for the owner
uuNeed to follow rules and regulations
uuLoss of privacy
uuInvolvement of others in decisions, making decision-making more difficult.
13 Benefits of converting from a private limited company to a public limited
company include:
uuGreater access to finance
uuHigher profile
uuBetter image
uuBetter assurance for potential investors.
14 A new business might not seek to be a public limited company from the
outset because the costs of launching a public limited company are very high.
The risk of such a large “set-up” cost would be too high. In addition investors
would know nothing about the business until it has been operating for a
while. It is better to start more modestly and then convert to public limited
status once established.
15 Shareholders own a public limited company.
16 Benefits of operating as a franchise include:
uuAn easy way for a franchisee to start a business using an established
business model
uuAccess to “economies of scale” – lower average costs
uuAccess to expertise
uuLower risk than a completely new business

© Oxford University Press 2015: this may be reproduced for class use solely for the purchaser’s institute
 uuEasy way for franchisor to grow a business
uuRegular incomes for franchisor
uuLow-risk growth for franchisor.
17 The main features of a public limited company are:
uuPrivate sector organisation
uuShares widely available and freely traded on stock markets
uuAccess to finance on a large scale
uuHigher profile than most other business types.

Ideas for answers to case study

questions
Facebook in 2012
1 Selling shares to convert from the present business structure (e.g. sole trader,
private limited) to a public limited company.
2 Competition, customers, employees might use the information for their
own benefit
3 Ensure retention of ownership, attract a higher price. Ensure success of
flotation, ensure continued control.

Development of franchises in China

1 Low cost, fast way to grow, lower risk.
2 Established business, lower costs e.g. marketing, familiarity with local markets.
3 Large country, easy access to big markets. Fast growing so use a fast way to
grow. Way of gaining familiarity with different markets. Low-risk approach.

VW in China
1 Sharing costs, benefitting from local people, e.g. language, culture etc. Easier
access to Chinese market. Benefit from Chinese growth.
2 Access to VW expertise, products. Good way to fulfill growing demand
for cars.
3 China’s aim will be to have its own car industry. VW will not always need
support from Chinese government. Markets may change.
4 Differences in language, culture, currency, legislation.

Water industry – Mauritius

1 Poor management, political intervention, lack of planning.
2 Transparency, good governance, better management, lack of political
intervention.
3 Water belongs to everyone, it should not be profit-making, water should be
available to everyone.

© Oxford University Press 2015: this may be reproduced for class use solely for the purchaser’s institute
Ideas for answers to exam-style
questions
1 Discussion of:
uuThe features of being a sole trader
uuThe features of being a partnership
uuThe key features that need to change
uuThe impact of these changes in features that affect Sadiq and others
uuA judgment of the extent to which these affect Sadiq and others
uuA judgment of the most important, or largest, impacts.
2 Discussion of:
uuFeatures of a multinational
uuFeatures specific to OT
uuCosts and benefits of being a multinational to OT
uuCosts and benefits of multinationals to each of the countries
uuJudgment as to the extent to which being a multinational benefits OT
uuJudgment as to the extent to which being a multinational benefits the country
uuOverall judgment.

© Oxford University Press 2015: this may be reproduced for class use solely for the purchaser’s institute
 1.3 Size of business

Ideas for answers to progress

questions
1 A produces the most and has the largest turnover and investment. C employs
the most people.
2 Profit is not a good measure of business size because it is very variable from
period to period. Large businesses often have small profit margins.
3 It is difficult to define precisely which businesses/products are in a particular
market so that the size of the market is difficult to determine. Is it measured
by value or quantity?
4 The only businesses for which market capitalisation can be measured are
incorporated businesses. So any unincorporated business cannot be classified
by market capitalisation.
5 Benefits of remaining a small business include:
u Ability to remain innovative
u Ability to react to change
u Better relationships with customers
u Easier to manage and control
u Easier decision-making
u Easier to maintain a focus.
6 Benefits of being a family business include:
u Stronger personal stake in the business
u Better sense of direction
u Family bonds give better sense of purpose
u Usually harder working
u Start from a position of trust
u Families “stick together”.
7 Governments encourage small businesses in order to:
u Keep the economy innovative
u Improve the ability of the economy to adjust to a changing external
environment
u Increase competition and, therefore, efficiency
u Create jobs.
© Oxford University Press 2015: this may be reproduced for class use solely for the purchaser’s institute 1
8 Possible reasons for expanding include:
uuGreater demand for services
uuDesire to take on new areas of business
uuOver-work of existing partners
uuNeed to increase revenues.
9 The benefits to the farmer could include:
uuPossibility of increasing the turnover of the business and possibly profits
uuPossible economies of scale (lower average costs)
uuOpportunity to diversify
uuRationalise how the farm is run
uuGrow raw materials for the rest of the farm (e.g. animal feed).
10 Horizontal merger/takeover involves businesses at the same level in the
production chain (e.g. two oil refining businesses). Vertical merger/takeover
involves businesses at different stages in the production chain (e.g. a furniture
manufacturer merges with a timber company or a furniture retailer).
11 A hostile takeover applied to a public limited company: the current owners do
not want to be taken over but the other business is buying shares on the stock
market with the hope of buying enough shares to eventually own the business.
A merger implies agreement of both parties.
12 Use Figure 1.3.2.
13 The success of most business activities relies on the co-operation and goodwill
of employees. This is also the case when a merger is involved. Prior to a
merger, without good communications with the workforce there are likely
to be rumours and concerns circulating amongst the employees. These will
not help morale and motivation and could affect the eventual success of the
merger. Informed employees are likely to be less worried about developments
and more willing to co-operate, easing problems that might occur as a result
of the merger. Another could be combining the product range. Sharing ideas
could produce large benefits.
14 Synergy occurs when two items are added together and the result is larger or
better than the sum of the individual parts. One example could result from
economies of scale resulting from a merger.

Ideas for answers to case study

questions
The Gazania Organisation
1 Teamwork, leadership, hard work, good decisions, management of risks.
2 May be more tolerated by family members. Somewhat autocratic, power
hungry style may upset non-family members.
3 Clear “hierarchy” established; gradual, progressive change; each established
their roles so less jealousy.

© Oxford University Press 2015: this may be reproduced for class use solely for the purchaser’s institute
eBay merger with Skype
1 Similar technology, complementary products, synergy.
2 Customers happy as they were; management changes did not generate
synergy; traditional versus trail-blazing businesses.
3 More working together especially management; improved customer relations.
4 Flexible versus rigid approach; different management styles.

Ideas for answers to exam-style

questions
1 Discussion of:
uuDefinition of small business
uuDefinition of  “developing country”
uuThe likely role of businesses in an undeveloped country
uuThe likely role of small businesses in an undeveloped country
uuThe contribution that a small business might make
uuThe contribution relative to the contribution of other businesses
uuConclusion evaluating whether small businesses are essential to the
development.
2 Discussion of:
uuExplanation of a merger
uuExplanation of a hostile takeover
uuExplanation of the difference between a merger and a hostile takeover
uuApplication of the concepts in the situation facing Jet Airways/Air Sahara
uuExplain why a hostile takeover would not be good.
3 Discussion of:
uuFeatures of a merger
uuApplication to Jet Airways/Air Sahara
uuFactors influencing the success of the merger
uuStrategies for enhancing these factors
uuFactors influencing the failure of a merger
uuStrategies for reducing the chance of possible failure
uuDiscuss the key factors and their likely impact
uuConclude which are the most important factors.

© Oxford University Press 2015: this may be reproduced for class use solely for the purchaser’s institute
 1.4 Business objectives

Ideas for answers to progress

questions
1 Corporate objectives that might apply to a supermarket include:
u Survival
u Profit maximisation
u Increased market share
u Greater market share than competitors
u Target share price
u Target profit.
2 Individual objectives for a librarian could include:
u Promotion
u Quiet life until retirement
u Happy “customers”
u A well-organised library
u Pay rise.
3 Without a timescale objectives provide only limited guidance. Managers and
employees need to know when an objective is to be achieved or else they will
have no sense of urgency.
4 Advantages of CSR policies include:
u Greater awareness of the business
u Customer loyalty
u Goodwill to most stakeholder groups including customers, employees, the
general public
u Marketing opportunities.
5 Mission statements are broad statements of the core values of a business.
Objectives are targets that enable a business to achieve its missions.
6 A tactic for increasing sales of a textbook could include:
u Sending sales representatives into schools
u Reducing prices
u Increased marketing
u Special offers.
© Oxford University Press 2015: this may be reproduced for class use solely for the purchaser’s institute 1
7 Objectives are important in decision-making because without them
decisions have no sense of direction. Objectives provide part of the
framework for the decisions and for reviewing whether the decisions
have been good ones.
8 Employees at a car manufacturer would know that increased output means
that employers expect more from them – either by working longer hours or
by increasing productivity (which will mean working harder).
9 An employee in a clothes business could be set the target of increasing
sales by 10 per cent over a fixed period of time, say one month. There are
other possibilities.
10 Targets could work because:
uuManagement may need “pushing” to increase output
uuManagers and employees will need to find ways to improve efficiency
uuTargets can prevent complacency.
11 Targets could cause problems in a hospital because:
uuAll patients are different and it is difficult to predict the differing needs
uuThere are dangers in “cutting corners”, which can happen with targets
uuMany tasks in hospitals do not lend themselves to suitable targets.

Ideas for answers to case study

questions
Google
1 To tell people what it is about and to set a long-term framework for
the business.
2 The aim tells people more about what it does in order to achieve its mission
statement.
3 Employees would know what they are working towards. Managers are
given a sense of direction. Owners and customers will know more about
the business.

The Red Street Hospital

1 Reducing infections. Some of the others may have seemed to have worked
out, but for the wrong reasons.
2 Finances have got worse, more people are dissatisfied, waiting times have
simply been transferred elsewhere.
3 All sorts of possibilities to discuss, e.g. better procedures for measuring
customer satisfaction targets, better management of patients etc.
4 Most people could argue that targets clearly have not worked in the interests
of the stakeholders as discussed in 2 and 3.

© Oxford University Press 2015: this may be reproduced for class use solely for the purchaser’s institute
Ideas for answers to exam-style
questions
1 a Discussion of:
uuExplanation of objectives
uuDefinition of SMART
uuExplanation of the meaning of SMART
uuPossible consequences of non-SMART objectives
uuPossible benefits of SMART objectives
uuConclusion explaining the importance of SMART objectives.
b Discussion of:
uuDefinition/explanation of “mission statement”
uuExplanation of particular features of a “manufacturer of medicines”
uuIdentification of types of mission statements
uuPossible mission statements for a business of this kind
uuDiscussion/argument about the benefits of broad, long-term
objectives for this sort of manufacturer
uuDiscussion/argument of possible problems with not having a mission
statement
uuConclusion balancing the two arguments.
2 Discussion of:
uuDefinition of CSR
uuRole of CSR in a business:
uu relating to people
uu relating to the environment
uu relating to the community
uu relating to suppliers
uu relating to products/services.
uuThe role of each of these in marketing
uuThe role of each of these in other aspects of business activity particularly
stakeholders other than customers
uuBalancing argument demonstrating that CSR has a far wider role than
simply marketing.

© Oxford University Press 2015: this may be reproduced for class use solely for the purchaser’s institute
 1.5 Stakeholders
in a business

Ideas for answers to progress

questions
1 The stakeholders identified are:
u The workforce
u The local town
u The government
u The shareholders (it is a public limited company).
2 Their interests are:
u Housing for the new employees
u Disruption for the town and eventually new infrastructure
u Grants from government
u Profits for shareholders.
3 The roles might be as follows:
u Employees might negotiate with managers/owners. They might threaten
industrial action
u The town will be involved in planning decisions (through the local
government) and hence will make decisions and negotiate
u The government provides money and also may be involved in planning
u Shareholders provide money and elect the decision-makers. They can
withdraw their investments.
4 Employees will want to keep their jobs but they are likely to be replaced by
the robots. Those who retain their jobs will need training and will have to
manage technology. Shareholders will expect robots to reduce average costs
and introduce flexibility for product design and manufacturing so will be
pleased that profits might increase.
5 Shareholders in this case are investors in the pharmaceutical business who have
provided finance for the business, have a share in the profits and vote on major
decisions at the AGM. Stakeholders are any group of people who have an
interest in the business, and include patients, the health service, employees, the
government, suppliers, doctors, the local community as well as shareholders.
6 The community could influence an airline business by lobbying over issues
such as noise and other pollution. It can also influence government and local
government over decisions involving the airline. Members of the community
are also likely to be customers and could boycott the airline if they are unhappy.
© Oxford University Press 2015: this may be reproduced for class use solely for the purchaser’s institute 1
7 By closing a production line the changes on stakeholders are likely to be:
uuEmployees might lose their jobs or have the nature of their jobs changed
uuManagers will have to manage change including redundancy
uuOwners will look for reduced costs, higher profits
uuCustomers will no longer be able to buy the old model of car
uuThe government will have to pay benefits to the resulting unemployed workers
uuThe local community will see a change in the land use.
8 Nuclear power is beneficial but potentially dangerous if not managed
properly. The local community, the government, employees will need to be
reassured that the plant is being operated safely and is safe from threats such
as earthquakes, terrorists etc.
9 Three ways to avoid stakeholder conflict include:
uuKeeping stakeholders informed
uuInvolving stakeholders in decisions
uuCSR policies.
10 The stakeholders that will be affected include:
uuShareholders who will get bigger dividends
uuEmployees who will have to work harder
uuCustomers may get better products or have to pay more.
11 Improved CSR will have a direct impact on a number of stakeholders:
uuDifferent countries will view social responsibility differently
uuThe business will have to compete with other businesses with wide
differences in attitudes to CSR
uuLaws, regulations, ethics and values vary from country to country.

Ideas for answers to case study

questions
Airports in India
1 Advantages: increased employment, more convenient travel, growth for local
businesses.
Disadvantages: possible increased pollution, disruption, changes to local
culture.
2 Air travellers, shareholders, local businesses, employer, suppliers.
3 Insist on more fuel-efficient aircraft, controls on construction and noise,
pollution, hours of work, minimise disruption, better safety etc.

© Oxford University Press 2015: this may be reproduced for class use solely for the purchaser’s institute
Ideas for answers to exam-style
questions
1 The term “stakeholder” means: any individuals or groups of people who have
an interest in a business. Typically they are owners, employees, managers, the
community, suppliers and the government. They are potentially influenced by
actions of the business and in turn can have an impact on the business.
2 If a business opened a factory nearby, stakeholders who would support the
idea include the unemployed (the business may supply suitable jobs for them)
and potential suppliers (the business may buy products/services from them
increasing their sales). Groups opposed to the factory could include the
community who may not want any more noise or pollution.
3 Discussion of:
uuDefinition “shareholder” and their role in business activity
uuContribution of shareholders to the performance of a business
uuExplanation of other types of stakeholder
uuExplanation of roles of other stakeholders in business activity
uuPossible consequences of putting shareholders first
uuPossible consequences of putting other stakeholders first
uuBalancing view on the relative priorities of stakeholder
uuConclusion which argues the extent to which you agree with
the statement.
4 Discussion of:
uuThe stakeholder concept
uuThe stakeholders identified in the case
uuHow Tata has considered each stakeholder
uuBalancing conclusion that evaluates the extent to which each stakeholder
has been considered, possibly concluding which has been considered the
most, and which the least.

© Oxford University Press 2015: this may be reproduced for class use solely for the purchaser’s institute
 External influences
on business activity:
1.6a economic constraints
and enablers
Ideas for answers to progress
questions
1 Three reasons include: environmental issues, employment, impact on
local community.
2 Education is a “public good”, that is something that everyone benefits from. If
it is limited to only those that can afford it, the country will lose the benefit
from educating many talented people.
3 Because of a failing harvest there will be crop shortages. The price will go up
and some people will not be able to afford food – an essential purchase. Some
people might starve. In addition farmers may make poor decisions about next
year’s harvest based on temporary price distortions.
4 Markets might fail because of:
u Environmental disasters, e.g. floods
u Speculation
u Bad weather conditions
u Business failures.
5 Fluctuating commodity prices could affect a supermarket through the
changes to prices for the products that it stocks. For example, increased
wheat prices would affect the price of bread, increased fuel prices would
affect the cost of everything delivered. So it could affect both prices and costs
and hence profits. In fluctuating markets supermarkets would not want to
keep changing prices as this is costly to do and could affect customers.
6 More competition would benefit customers through:
u Reduced prices
u Greater choice.
7 Consequences of market failure include:
u Fluctuating prices
u Overreactions to situations
u Unforeseen consequences
u Undue economic power for individuals
u Costs of pollution not fairly borne.

© Oxford University Press 2015: this may be reproduced for class use solely for the purchaser’s institute 1
8 High unemployment can be bad because:
uuIt is a waste of resources
uuIt can cost the government a lot of money in unemployment benefits
uuUnemployed people spend little so dampening economic growth
uuFamilies suffer hardship.
9 Advantages of economic growth include:
uuHigher employment
uuLower social security costs
uuMore tax revenues so more money for schools, hospitals etc.
Disadvantages include:
uuEnvironmental damage
uuRisk of inflation
uuExtremes of wealth distribution.
10 An unstable exchange rate can make it difficult for an exporter of raw materials
such as crude oil because it is difficult to negotiate export contract prices.
Customers face uncertainties, which makes negotiations difficult. Customers
may switch to importing from a country with a more stable exchange rate.
11 People who might benefit from inflation include:
uuBorrowers who find the value of their debt falling. Their debts reduce
without doing anything
uuEmployees who may benefit from inflation-linked wages. Wages could
increase
uuOwners of property who may benefit from property price rises
uuBusinesses who might benefit from increases in the value of their inventories.
12 Reducing unemployment may mean that there are shortages of particular
types of skills, which might lead to wage increases. Those who switch from
being unemployed to being employed will start spending more as they earn
incomes, which will increase demand for products and services which can
then lead to a general increase in prices.
13 In order to get rid of poverty, a government will have to spend more, which
will mean raising taxes. Increased taxes will mean that employees and
businesses will have less money to spend, which can have a downward
pressure on growth which is unlikely to be compensated by increased
spending by the poor.
14 If interest rates in a country are increased relative to other countries then
savers/investors in those countries may transfer their savings/investments to
the country with higher interest rates. This means currency transfers, which
involve buying the currency for the country with the higher interest rates.
This means upward pressure on the “price” of that currency, i.e. the exchange
rate for that currency.
15 A recession is a period of negative economic growth for a country. During a
recession real wages will fall and unemployment will increase so there will be
less money spent by consumers. Final consumers and businesses will focus
on essential spending and may put off buying decisions for major purchases

© Oxford University Press 2015: this may be reproduced for class use solely for the purchaser’s institute
 such as new cars. So car manufacturers will face falling demand for cars. They
may have to reduce prices to attract buyers and maintain cash flow. As a result
profits are likely to fall. There may be some benefits though, the price of raw
materials and components may fall, reducing costs for the car manufacturer.
16 It depends what the problem is: it could be falling rates, increasing rates,
fluctuating rates. If it is due to falling rates or fluctuating rates, the local
computer manufacturer may have to import components and these may be
difficult to import if exchange rates are uncertain or more expensive. However,
it may be easier for the local business to export. The competitors will find it
more difficult to export to this country. Increasing exchange rates will help
reduce the cost of imported components and make it easier for competitors
but make it more difficult for the local business to export.
17 Bread is an essential product in many countries, and even people who are
unemployed will have to buy it. So demand is unlikely to fall.
18 A fast-food business is likely to employ low-wage people. Lower wages could
work if unemployment is high. In many countries such businesses employ
students so lower wages might be possible in school/college/university
holidays when many students seek work.
19 A falling exchange rate means it is easier to export, so a manufacturer could
exploit export markets. It also makes imports more expensive so there
may be less competition from overseas manufacturers. However, imported
components will be more expensive.
20 Let us suppose your country, which uses the $, trades with another country
that uses the £ as its currency. Let us also suppose a computer costs £500
in the other country. If the exchange rate is £1 = $2 then it will cost $1000
dollars to import the computer. If the exchange rate changes to £1 = $1 it
will now cost $500 to import the computer. If your computer company also
exports computers then when the exchange rate is £1 = $2 the computer
that costs $1000 can be sold in the other country for £500 whereas when
the exchange rate is £1 =$1 the computer will be sold for $1000. A strong
exchange rate makes importing easier, exporting more difficult.
21 Examples of the differences include:
uuFiscal policies involve changing taxes and spending
uuMonetary policies involve changing interest and exchange rates.
22 A strong currency may not be a good thing because it may become more
difficult for local businesses to export, and overseas businesses might find it
easier to compete.

Ideas for answers to case study

questions
The 2007–  8 credit crunch
1 Banks provide lending, financial stability, money, services to the community –
all necessary.
2 Global nature of business and banking.
3 People withdrew money because risks became too high, confidence in the
banks fell.
3

© Oxford University Press 2015: this may be reproduced for class use solely for the purchaser’s institute
4 Some banks were nationalised because they could not be allowed to fail. If
they did fail, it would cause other banks to fail, and that would have been
catastrophic for the world’s economic systems.
5 Banks took too much risk. Problems occured when regulations were relaxed.
The markets failed.

Tata Steel 2011

1 Government spending, lower interest rates, increased borrowing by
government.
2 Demand for steel, interest rates, level of growth, government spending on
infrastructure.
3 If Tata cuts costs it may be able to reduce prices which could stimulate
demand. Improving the ability to meet customer requirements could generate
more business. Changing the product range to cheaper products may appeal
to customers with limited money to spend.

China monetary policy decision, 2012

1 (a) Period with below zero growth; (b) measure of value of products and
services produced; nation’s wealth (c) managing the economy through money
supply and interest rates.
2 Growth fell but inflation increased, more money made available but inequality
increased.
3 Banks could lend more so house prices go up.
4 Eased borrowing suggests that its objective was to stimulate demand and hence
growth. Tightening borrowing suggests that it wanted to slow growth down.
5 Discussion should include: major impact on prices, growth, employment,
equality.

How to beat a recession

1 Lower end of price range. New products, new services, increased advertising,
cutting costs, using data.
2 Younger customers often have more money to spend. Younger customers may
be attracted more by new products and services such as the Internet.
3 Raw materials, wages, fuel, rents.
4 Identifying problems, solutions. Analysing possible solutions.

Ideas for answers to exam-style

questions
1 Discussion of:
a Inflation is a situation in which there is a sustained general increase in
prices in a country over a period of time. It can lead to people feeling
worse off unless their wages increase.
b Recession is a period of time (usually six months or more) when a
country does not grow – its GDP declines.
c Deflation is the opposite of inflation – it is a sustained period of
falling prices in a country. It can lead to falling profits for businesses.
4

© Oxford University Press 2015: this may be reproduced for class use solely for the purchaser’s institute
2 Discussion of:
uuKey features of MC:
uu what MC does
uu falling sales
uu highly competitive market.
uuExplanation of economic conditions in country A:
uu developed country
uu low growth and expected to continue
uu high inflation
uu interest rate same as inflation
uu some unemployment
uu strengthening currency.
uuImpact of each of the above on MC
uuHow these have an impact on operations:
uu manufacturing
uu marketing
uu other.
uuOverall conclusion.
3 Discussion of:
uuFeatures of country C
uuFeatures of MC
uuMC imports into country C from country A. Does it export from
country C?
uuImpact of weakening exchange rate on imports from country A
uuDiscussion of whether this is important since:
uu there is little competition in country C
uu country C is an emerging economy.
uuBalancing conclusion.
4 Discussion of:
uuThe impact of unemployment on sales and customers in country B
uuHow MC might respond
uuThe impact of high unemployment on employees and wages at MC
uuThe impact of high unemployment on recruitment
uuBalancing conclusion arguing for the most important response.
5 Discussion of:
uuRelevant features of MC in country B:
uu no factories
uu falling sales
5

© Oxford University Press 2015: this may be reproduced for class use solely for the purchaser’s institute
 uu maintain market share
uu high competition.
uuRelevant developments in country B:
uu 3 per cent growth, better than A
uu high unemployment rate
uu unstable currency.
uuImpact of high unemployment on MC:
uu reduced potential demand from customers
uu customers looking for cheaper models
uu price a more important factor in decisions
uu potential for cheaper labour.
uuPossible response of MC:
uu reduce prices
uu make cheaper models
uu consider relocating to country B.
6 Discussion of:
uuExplanation of relocation decisions
uuParticular relevant features of country B
uuParticular relevant features of country C
uuDiscussion of the key factors in this decision, and why
uuConclusion as to the most important factors and how they apply in
this situation.

© Oxford University Press 2015: this may be reproduced for class use solely for the purchaser’s institute
 External influences

1.6b on business activity:

additional external
constraints and enablers
Ideas for answers to progress
questions
1 A building business would benefit from health and safety laws because:
u Houses would be safer and easier to sell
u Employees would be kept safe avoiding lost hours worked, compensation etc.
u Less risk of legal action being taken against the business.
2 The minimum wage would increase costs for a clothes manufacturer because:
u Clothing manufacturers often have low-wage employees
u Wage costs would increase, possibly reducing profits.
3 The following might constitute unfair dismissal:
u Being sacked for belonging to a trade union
u Being sacked for “speaking your mind”
u Being sacked for “whistle blowing”
u Being sacked because “you do not fit in” or the boss does not like you.
4 A large, profitable business might respond by:
u Taking a close look at salaries offered to its own executives to see if they
are “excessively” paid
u Preparing a case justifying its salary structure
u Reviewing its salary structure.
5 Social changes influence a retail business because:
u Customer buying habits might change
u Fashions might change
u Some markets might grow (e.g. increased divorce might lead to increased
demand for smaller houses).
6 People without IT skills could be helped by:
u Making IT products easier to use
u Providing more information to people
u Providing training opportunities.
7 Different customer buying habits would suggest changing the product range
and possibly the ingredients. Fashions might change and require a different
marketing influence. Different ethnic groups may have a variety of responses

© Oxford University Press 2015: this may be reproduced for class use solely for the purchaser’s institute 1
 to marketing methods. Image may mean different things to different ethnic
groups, so this would have to be looked at.
8 The changing role of women in society might affect the design of cars because:
uuWomen may want different features
uuColour choices may be different
uuWomen may want a different size of car and different level of performance
uuWomen may be influenced by different marketing strategies and hence
product design.
9 A fast-food business might want to employ young people because:
uuThey are usually paid lower wages
uuThey are probably the greatest users of fast-food outlets
uuIt suits the image of a fast-food outlet
uuFast-food outlets often employ students.
10 A business selling garden products may prefer to employ older people because:
uuOlder people are more familiar with gardens and gardening
uuThey may want a part-time job after they have retired from their careers
uuOlder people are usually the main customers for garden products.
11 An ageing population could affect the entertainment industry because they have:
uuDifferent tastes in music, films, TV etc.
uuDifferent (more traditional) choice of media
uuPossibly more money to spend on entertainment than younger people
uuDifferent responses to marketing strategies than young people.
12 A shoe manufacturer might have an impact on the environment by:
uuCausing pollution through the use of machinery, plastics
uuUsing scarce materials such as leather.
13 A new MP3 player might have an environmental impact through:
uuThe materials used
uuThe production process
uuPossible noise.

Ideas for answers to case study

questions
The need for employment protection
1 Attempts to cut costs, poor health and safety, carelessness, stupidity, lack of
legislation etc.
2 Waste of human resources, creates tensions and conflict, people will not work well.
3 Legislation, advertising, setting an example.
4 Reduced costs of treating people for illness or injury, greater productivity,
more resources used productively.
2

© Oxford University Press 2015: this may be reproduced for class use solely for the purchaser’s institute
Traidcraft
1 Helps identify whether it is reaching its stated obligations.
2 Its objectives do not have profits as a high priority, there are many other
important factors. Profits are closely related to sales, so sales may not have a
high priority. They may want to achieve other things such as “fair” prices.
3 Shareholders will have similar socially responsible objectives so will not
behave like traditional shareholders.
4 Target customers will be impressed and therefore buy more. Ethical investors
may want to invest, allowing the business to grow. So profits may grow even
though that is not a key objective.
Malaysia and climate change
1 Reduce pollution, meet international agreements, to please voters, satisfy
environmental pressure groups.
2 Creating publicity, providing information, attempting to stop activities.
3 It has to approve plans, it needs to achieve goals.
4 Coal industry may be unhappy. Constructors would lose work. Electricity may
cost more, businesses supplying other methods of generating electricity might
benefit.
5 Hydropower, wind power, solar power etc.
6 Increased costs to customers, reduced production, seeking imported products.

Ideas for answers to exam-style

questions
1 Discussion including:
uuIdentifying areas in which governments control businesses
uuIdentifying particular relevant features of Sibco:
uu possible price increases
uu safety concerns
uu pollution
uu cost issues.
uuAnalysing ways in which the government might control Sibco, including
their impact on Sibco:
uu wages
uu working conditions
uu advertising
uu raising of finance
uu pollution and other environmental factors
uu consumer protection
uu trade
uu influences such as interest rates.
uuBalancing between the positive and negative impacts.
3

© Oxford University Press 2015: this may be reproduced for class use solely for the purchaser’s institute