2023 Oct/Nov · Paper 32 · Q4 (b)12 marksEthics, CSR and sustainability
2023 May/June · Paper 12 · Q2 (a)2 marksEnterprise and business plans
2023 May/June · Paper 12 · Q45 marksStakeholders
2023 May/June · Paper 22 · Q1 (a(i), a(ii))4 marksEnterprise and business plans
2023 May/June · Paper 22 · Q2 (a(i), a(ii), b(ii), c)15 marksBusiness objectives · Ethics, CSR and sustainability · Size of business and growth · Stakeholders
2023 May/June · Paper 32 · Q3 (c)12 marksBusiness structure and legal forms
2023 May/June · Paper 32 · Q512 marksEthics, CSR and sustainability
2022
2022 Oct/Nov · Paper 12 · Q2 (a, b)5 marksEthics, CSR and sustainability
2022 Oct/Nov · Paper 22 · Q1 (a(ii))3 marksBusiness structure and legal forms
2022 Oct/Nov · Paper 22 · Q2 (a(ii))3 marksEnterprise and business plans
2022 Oct/Nov · Paper 32 · Q110 marksSize of business and growth
2022 May/June · Paper 12 · Q2 (a, b)5 marksBusiness structure and legal forms
2022 May/June · Paper 22 · Q1 (a(ii), c)11 marksBusiness structure and legal forms · Stakeholders
2022 May/June · Paper 22 · Q2 (a(ii))3 marksSize of business and growth
2022 May/June · Paper 32 · Q316 marksEthics, CSR and sustainability
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References only, not question text. Open Official paper ↗ where Cambridge publishes the paper,
or see the official Cambridge past-papers page; for other papers, ask your
school. “Paper 42” means Paper 4, variant 2.
Practice questions
Original questions written by HomiLabs in the style of the exam, with answers and mark schemes. They are not
Cambridge past paper questions and have not been reviewed by Cambridge. Try each one before opening the answer.
Q1External environment (economic, political, competition) · Core · Paper 3 style · 6 marks
Basmati Gold exports rice from Pakistan to the USA. It prices its rice at Rs 250,000 per tonne. The exchange rate changed from US$1 = Rs 280 to US$1 = Rs 300.
(a)Calculate the US dollar price of one tonne of Basmati Gold rice before and after the change in the exchange rate. Give your answers to the nearest cent.[3]
(b)Explain how this change in the exchange rate affects the competitiveness of Basmati Gold in the USA.[3]
Show answer
(a) Before: $892.86; after: $833.33 per tonne.
Before: 250,000 ÷ 280 = $892.86 (M1 A1 for one correct). After: 250,000 ÷ 300 = $833.33 (A1).
(b) The rupee has depreciated, so with the rupee price unchanged the dollar price falls by about $60 a tonne; Basmati Gold's rice becomes cheaper for US importers than rice from rival exporting countries, so demand and export volume should rise (or the firm can raise its rupee price and earn a higher margin).
1 mark: rupee depreciation makes exports cheaper in dollars; 1 mark: more price competitive vs rival suppliers; 1 mark: consequence (more sales / option to raise margin).
Q2External environment (economic, political, competition) · Core · Paper 2 style · 6 marks
Bake House is a bakery in Quetta. Its monthly sales revenue is Rs 2,000,000, ingredient costs are Rs 1,200,000 and other costs are Rs 500,000. Inflation causes ingredient costs to rise by 12 %. Bake House raises its prices by 5 %, and the number of items sold stays the same. Other costs do not change.
(a)Calculate Bake House's monthly profit after the changes.[3]
(b)Explain one other way inflation could affect Bake House.[3]
(b) Employees will ask for higher wages to keep up with rising prices, increasing Bake House's costs further; if it cannot pass these on to price-sensitive customers, profit falls again. Also accept: customers' real incomes fall so they buy fewer cakes; uncertainty delays investment.
1 mark for knowledge of the term/concept; up to 2 marks for explaining it in the context of the business (application).
Q3External environment (economic, political, competition) · Standard · Paper 3 style · 8 marks
(a)The central bank has raised its interest rate from 12 % to 17 %. Analyse two effects of this rise on AutoPak, a car manufacturer that sells most of its cars to customers who buy on credit (car loans).[8]
Show answer
(a) 1. Lower demand: car loans become more expensive, so monthly repayments rise; many middle-income customers postpone buying, so AutoPak's sales and revenue fall, leaving spare capacity and higher unit fixed costs. 2. Higher costs of finance: AutoPak's own overdraft/loan interest rises, raising costs and reducing profit; it may delay investment in a new model, harming long-term competitiveness. (Also: rupee may appreciate, making imported parts cheaper.)
Effects: consumer demand for credit-financed goods, cost of borrowing for the firm, investment decisions, exchange rate, inventory costs. Mark scheme: AO1 knowledge 2, AO2 application 2, AO3 analysis 4. Level 2 (5–8): two developed chains of analysis, each clearly applied to this business. Level 1 (1–4): knowledge and/or application with undeveloped or generic analysis. Evaluation earns no extra marks.
Q4External environment (economic, political, competition) · Standard · Paper 3 style · 8 marks
(a)The government has raised the national minimum wage by 25 %. Analyse two effects of this change on BurgerHub, a fast-food chain with 1,200 employees, most of whom are paid the minimum wage.[8]
Show answer
(a) 1. Higher costs: wage costs rise by up to 25 %, a large share of a labour-intensive fast-food firm's costs; unless prices rise, profit margins fall, and higher menu prices may reduce demand from price-sensitive young customers. 2. Motivation and staff turnover: better pay may reduce labour turnover and absenteeism, lowering recruitment and training costs and improving service speed; BurgerHub may also respond by investing in self-order kiosks to reduce staff numbers. Also: higher incomes of low-paid workers may increase demand for fast food.
Effects: wage costs/prices/profit; motivation/turnover; substitution of capital for labour; demand effect of higher incomes. Mark scheme: AO1 knowledge 2, AO2 application 2, AO3 analysis 4. Level 2 (5–8): two developed chains of analysis, each clearly applied to this business. Level 1 (1–4): knowledge and/or application with undeveloped or generic analysis. Evaluation earns no extra marks.
Q5External environment (economic, political, competition) · Challenge · Paper 3 style · 12 marks
Kayu Craft makes mid-priced wooden furniture in Malaysia. 70 % of its sales are in Malaysia and 30 % are exported. Malaysia is joining a regional trade agreement that will remove tariffs on furniture traded between member countries over three years. Manufacturers in two other member countries have labour costs about 25 % lower than Kayu Craft.
(a)Evaluate whether Kayu Craft will benefit from Malaysia joining the new regional trade agreement.[12]
Show answer
(a) Benefits: removal of tariffs on furniture exports makes Kayu Craft's products cheaper in member countries, opening a larger market and economies of scale; cheaper imported fittings and varnish lower costs. Threats: tariffs also fall on imports, so lower-cost rivals from Vietnam and Indonesia gain access to Malaysia, where 70 % of sales are made; Kayu Craft must compete on price or differentiate; meeting common product standards may add costs. Judgement: depends on whether its cost and quality allow it to compete — as a mid-priced, design-led firm with only 30 % exports, the threat to its home market may outweigh export gains in the short term, unless it uses the agreement to expand exports aggressively and develop its design USP.
Use data: share of home vs export sales, competitors' costs, tariff changes. Weigh opportunities (exports, cheaper inputs) against threats (imports, standards). Clear judgement. Mark scheme: AO1 knowledge 2, AO2 application 2, AO3 analysis 2, AO4 evaluation 6. Level 3 (9–12): developed analysis in context plus a supported judgement that answers the question for this business (e.g. 'it depends on…' weighed, with a clear conclusion). Level 2 (5–8): developed analysis with some, limited or unsupported evaluation. Level 1 (1–4): knowledge and some application; little or no analysis.
Q6External environment (economic, political, competition) · Challenge · Paper 4 style · 20 marks
SkyBlue Airways (an invented Pakistani airline). Appendix 1: GDP is forecast to fall by 1.5 % next year. Appendix 2: jet fuel prices rose 30 % in 12 months; fuel is 38 % of SkyBlue's costs and is priced in US dollars. Appendix 3: the rupee fell 15 % against the US dollar. Appendix 4: domestic load factor (percentage of seats filled) fell from 81 % to 68 %; international load factor stayed at 79 %. Appendix 5: a foreign low-cost airline has started flights on SkyBlue's two most profitable routes.
(a)Advise SkyBlue Airways on the strategy it should follow over the next two years in response to these changes in its external environment.[20]
Show answer
(a) Options: (1) Cut costs — reduce routes with low load factors, delay delivery of new aircraft, renegotiate leases, hedge fuel; protects cash during recession. (2) Change marketing — cut fares on domestic routes to fill seats (demand is price-elastic in recession), focus on business travellers and the Hajj/Umrah and diaspora markets where demand is less affected. (3) Exploit the weak rupee: overseas customers find SkyBlue cheaper, so expand international routes priced in foreign currency, while noting that fuel and leases are priced in dollars and become more expensive. Recommendation: a combination — protect cash flow (fuel hedging, temporary route cuts), keep fleet investment only for fuel-efficient aircraft, and focus on routes with foreign-currency revenue; justify with appendix data (load factor fall, fuel share of costs, dollar-denominated costs). Conditions: depends on how long the recession lasts and competitors' actions.
Must use appendices: recession/GDP, fuel price, exchange rate, load factors, competitor entry. Consider economic, political, competitive factors. Clear prioritised recommendation. Levels: Level 4 (16–20): accurate knowledge, strong use of the case data, three or four developed chains of analysis and a well-supported judgement/recommendation throughout, specific to this business and its situation. Level 3 (11–15): developed analysis in context with some supported evaluation. Level 2 (6–10): some analysis, mostly descriptive use of the case; evaluation weak or unsupported. Level 1 (1–5): knowledge with little application.
Q7Ethics, CSR and sustainability · Core · Paper 1 style · 5 marks
(a)Define the term 'corporate social responsibility (CSR)'.[2]
(b)Explain one way a cement manufacturer could reduce its impact on the environment.[3]
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(a) The idea that a business should consider the interests of society and all stakeholders (e.g. the environment, employees, local communities), not just shareholders' profits, going beyond legal requirements.
1 mark: responsibility to society/stakeholders/environment; 1 mark: beyond legal duty / not only profit for owners.
(b) Fit filters to kiln chimneys to reduce dust emissions, protecting the health of nearby villagers; or use waste heat recovery/solar power, cutting fossil fuel use and CO₂ emissions per tonne of cement.
1 mark for knowledge of the term/concept; up to 2 marks for explaining it in the context of the business (application).
Q8Ethics, CSR and sustainability · Core · Paper 2 style · 7 marks
ChocoDelight makes premium chocolate bars sold in supermarkets in the UAE. It buys only Fairtrade cocoa, which costs 15 % more than other cocoa but guarantees farmers a minimum price.
(a)Identify one stakeholder group that benefits from ChocoDelight's use of Fairtrade cocoa.[1]
(b)Explain the term 'ethical decision'.[3]
(c)Explain one reason why ChocoDelight might continue to use Fairtrade cocoa even though it costs 15 % more.[3]
Show answer
(a) Cocoa farmers (suppliers).
1 mark: farmers/suppliers (accept customers who value ethics).
(b) A decision based on what is morally right (honest, fair, responsible) rather than only on what is legal or most profitable. For ChocoDelight, paying farmers a fair price even though cheaper cocoa is available is an ethical decision.
(c) Its target customers are willing to pay more for ethical products; the Fairtrade label differentiates its chocolate from cheaper brands, supporting a premium price and brand loyalty, so the higher cost is covered by higher revenue.
1 mark for knowledge of the term/concept; up to 2 marks for explaining it in the context of the business (application). Also accept: protect reputation, secure reliable long-term supply, motivate staff, owners' values.
Q9Ethics, CSR and sustainability · Standard · Paper 2 style · 8 marks
(a)StyleMart is a clothing retailer that buys clothes from 40 factories in Bangladesh and Pakistan. It is considering paying independent auditors to inspect working conditions in all its suppliers' factories every year. Analyse two benefits to StyleMart of auditing its suppliers.[8]
Show answer
(a) 1. Protects reputation: if a supplier is found using child labour or unsafe buildings, media coverage could lead to boycotts; audits identify problems before a scandal, protecting StyleMart's brand and sales among ethically aware young customers. 2. Supply reliability and quality: factories with safe conditions and fair treatment have lower labour turnover, fewer accidents and strikes, so deliveries are more reliable and quality more consistent, reducing lost sales from stock-outs. Also: meets demands of investors/retail partners; marketing advantage.
Benefits: reputation/brand, customer loyalty, investor expectations, reliable supply, legal compliance, competitive advantage. Mark scheme: AO1 knowledge 2, AO2 application 2, AO3 analysis 4. Level 2 (5–8): two developed chains of analysis, each clearly applied to this business. Level 1 (1–4): knowledge and/or application with undeveloped or generic analysis. Evaluation earns no extra marks.
Q10Ethics, CSR and sustainability · Standard · Paper 3 style · 6 marks
ClearGlass makes glass bottles. In 2023 it produced 2,000 tonnes of glass a month and emitted 4,600 tonnes of CO₂ a month. After installing a more efficient furnace, in 2025 it produced 2,600 tonnes a month and emitted 5,200 tonnes of CO₂ a month.
(a)Calculate the percentage reduction in CO₂ emissions per tonne of glass produced between 2023 and 2025. Give your answer to 1 decimal place.[3]
(b)Explain why total emissions rose even though the business became more sustainable.[3]
(b) Output rose by 30 % (from 2,000 to 2,600 tonnes), so although each tonne of glass now causes 13 % less CO₂, the larger volume means total emissions rose from 4,600 to 5,200 tonnes. Growth offset the efficiency gain.
1 mark: output increased; 1 mark: emissions per unit fell; 1 mark: growth in output outweighs the per-unit reduction (with data).
Q11Ethics, CSR and sustainability · Challenge · Paper 3 style · 12 marks
FizzCo makes soft drinks in Pakistan and sells 90 % of them in plastic bottles. The government is considering a tax on single-use plastic. Changing all filling lines to glass and cans would cost Rs 1.8 billion. FizzCo's market research shows that 35 % of urban customers would pay 5 % more for drinks in returnable glass bottles.
(a)Evaluate whether FizzCo should replace all its plastic bottles with glass bottles and cans within three years.[12]
Show answer
(a) For: growing consumer and government pressure (proposed tax on single-use plastic) means continued plastic use could raise costs and damage the brand; being first to switch may attract environmentally aware customers and protect long-term sales; glass can be returned and refilled. Against: glass bottles cost more, are heavier (higher fuel cost and emissions in transport), break more easily; investment in new filling lines (Rs 1.8 billion) strains finance; rivals still using plastic may undercut on price in a price-sensitive market. Alternatives: recycled plastic (rPET), bottle-return scheme, gradual change. Judgement: a phased change, starting with premium/urban products and recycled plastic, is better than a full switch in three years unless the plastic tax is confirmed; depends on customer willingness to pay and finance.
Weigh costs, finance, customers' price sensitivity, legislation, reputation, competitors, whether glass is truly more sustainable. Judgement in context. Mark scheme: AO1 knowledge 2, AO2 application 2, AO3 analysis 2, AO4 evaluation 6. Level 3 (9–12): developed analysis in context plus a supported judgement that answers the question for this business (e.g. 'it depends on…' weighed, with a clear conclusion). Level 2 (5–8): developed analysis with some, limited or unsupported evaluation. Level 1 (1–4): knowledge and some application; little or no analysis.
Q12Ethics, CSR and sustainability · Challenge · Paper 1 style · 12 marks
(a)'Corporate social responsibility is just a marketing tool for banks.' Evaluate this view for a large commercial bank in Pakistan.[12]
Show answer
(a) Supporting: banks publicise CSR (tree planting, scholarships) in advertising to improve their image and attract depositors; spending is small compared with profits; some banks fund polluting industries while promoting green image ('greenwashing'). Against: CSR can be genuine and strategic — financial inclusion schemes (microfinance, accounts for women), ethical lending policies that refuse funding for harmful projects, and fair treatment of staff create long-term value for society; regulators and international investors increasingly require ESG reporting; employees are motivated by real CSR. Judgement: for many banks CSR has a marketing element, but whether it is 'just' marketing depends on whether CSR is built into core decisions (lending, products, employment) or is only publicity; the evidence lies in actions rather than advertising.
Arguments for/against, use of examples in banking, judgement with criteria for genuine CSR. Mark scheme: AO1 knowledge 2, AO2 application 2, AO3 analysis 2, AO4 evaluation 6. Level 3 (9–12): developed analysis in context plus a supported judgement that answers the question for this business (e.g. 'it depends on…' weighed, with a clear conclusion). Level 2 (5–8): developed analysis with some, limited or unsupported evaluation. Level 1 (1–4): knowledge and some application; little or no analysis.
Q13Size of business and growth · Core · Paper 1 style · 5 marks
(a)Define the term 'horizontal integration'.[2]
(b)Explain one reason why many small businesses survive in the hairdressing industry.[3]
Show answer
(a) When a business merges with or takes over another business in the same industry at the same stage of production (e.g. two hotel chains joining).
1 mark: merger/takeover/integration; 1 mark: same industry and same stage of production.
(b) Hairdressing offers a personal service where customers value a relationship with a stylist near their home; small salons can provide flexible, personalised service with low start-up costs, so large chains have little cost advantage. Also accept: local niche markets, low barriers to entry, limited economies of scale.
1 mark for knowledge of the term/concept; up to 2 marks for explaining it in the context of the business (application).
Q14Size of business and growth · Core · Paper 2 style · 7 marks
TechTrade is a Pakistani electronics retailer. It is considering a joint venture with a Chinese manufacturer to assemble mobile phones in Pakistan.
(a)Identify one way of measuring the size of a business.[1]
(b)Explain the term 'joint venture'.[3]
(c)Explain one problem that TechTrade might face if it grows by forming a joint venture.[3]
Show answer
(a) Number of employees (or revenue, capital employed, market share, output).
1 mark for any valid measure.
(b) Two or more businesses agree to share capital, risks, resources and profits by setting up a new, separate business for a particular project, while remaining independent. For example, TechTrade could form a joint venture with a Chinese electronics maker to assemble phones in Pakistan.
1 mark: two or more firms; 1 mark: share costs, risk and profits / create a separate enterprise; 1 mark: application.
(c) The partners may disagree about objectives — for example the Chinese partner may want to import more components while TechTrade wants local suppliers — leading to slow decisions and conflict, and profits must be shared.
1 mark for knowledge of the term/concept; up to 2 marks for explaining it in the context of the business (application).
Q15Size of business and growth · Standard · Paper 2 style · 6 marks
SwiftRide is a ride-hailing app in Pakistan. Total market revenue: 2024 Rs 24 billion; 2025 Rs 30 billion. SwiftRide's revenue: 2024 Rs 3.6 billion; 2025 Rs 5.1 billion.
(a)Calculate SwiftRide's market share in 2024 and in 2025.[3]
(b)Explain one reason why SwiftRide's growth may cause problems for the business.[3]
(b) Rapid growth (revenue up 42 %) may lead to diseconomies of scale or overtrading: SwiftRide may not have enough drivers or working capital to meet demand, causing long waiting times and a cash-flow crisis despite rising sales.
1 mark for knowledge of the term/concept; up to 2 marks for explaining it in the context of the business (application).
Q16Size of business and growth · Standard · Paper 2 style · 8 marks
(a)Green Valley Dairy is a co-operative of 600 milk farmers. It plans to buy a chain of 25 dairy shops in Lahore. Analyse two benefits to Green Valley Dairy of this forward vertical integration.[8]
Show answer
(a) 1. Higher added value: the co-operative can sell milk, yoghurt and butter directly to consumers at retail prices instead of selling to wholesalers at low farm-gate prices; it captures the retailer's profit margin, increasing farmers' incomes. 2. Guaranteed outlet and market information: the shops provide an assured outlet for the members' milk, reducing the risk of retailers switching to rival suppliers; direct contact with customers gives information on demand, helping the co-operative develop new products.
Benefits: control of distribution, retail margin, guaranteed outlet, brand building, market information, barrier to competitors. Mark scheme: AO1 knowledge 2, AO2 application 2, AO3 analysis 4. Level 2 (5–8): two developed chains of analysis, each clearly applied to this business. Level 1 (1–4): knowledge and/or application with undeveloped or generic analysis. Evaluation earns no extra marks.
Q17Size of business and growth · Challenge · Paper 1 style · 12 marks
(a)A bakery chain with 12 shops in Islamabad wants to double its size in five years. Evaluate whether internal (organic) growth is better than taking over a rival chain.[12]
Show answer
(a) Internal: opening new shops gradually keeps control and culture, lower risk, can be funded from retained profit; but slow and may let rivals take the best locations. Takeover: rapid growth, instant market share and locations, removes a competitor and may give economies of scale in buying flour and distribution; but expensive (premium over value), needs large external finance, risk of culture clash, different recipes/quality standards, and the rival may have hidden problems; potential diseconomies of scale. Judgement: depends on finance available, whether a suitable rival is for sale at a fair price, and how urgent growth is. For a quality-focused bakery where product consistency is key, organic growth is usually safer; a takeover is better only if a well-run rival with good locations is available.
Compare speed, cost, risk, control, culture, finance, market share, economies of scale. Judgement in context. Mark scheme: AO1 knowledge 2, AO2 application 2, AO3 analysis 2, AO4 evaluation 6. Level 3 (9–12): developed analysis in context plus a supported judgement that answers the question for this business (e.g. 'it depends on…' weighed, with a clear conclusion). Level 2 (5–8): developed analysis with some, limited or unsupported evaluation. Level 1 (1–4): knowledge and some application; little or no analysis.
Q18Enterprise and business plans · Core · Paper 1 style · 5 marks
(a)Define the term 'entrepreneur'.[2]
(b)Explain one quality an entrepreneur needs when starting a food-delivery business.[3]
Show answer
(a) A person who identifies a business opportunity, organises resources (land, labour, capital) to start a business and takes the financial risk.
1 mark: identifies opportunity/starts business; 1 mark: organises factors of production and/or takes risk.
(b) Resilience: many new delivery businesses make losses at first; an entrepreneur must keep going despite setbacks such as late riders or bad reviews, learning and improving until the business becomes profitable. Accept: innovation, risk-taking, self-confidence, hard work, leadership.
1 mark for knowledge of the term/concept; up to 2 marks for explaining it in the context of the business (application).
Q19Enterprise and business plans · Standard · Paper 2 style · 6 marks
HerCraft is a new social enterprise in Hunza that trains women to make handicrafts and sells their work online. Its founder has written a business plan and applied to a development bank for a loan of Rs 3 million.
(a)Explain the term 'social enterprise'.[3]
(b)Explain one purpose of a business plan for HerCraft.[3]
Show answer
(a) A business with social or environmental objectives that uses most of its profits to further those objectives rather than paying them to owners. HerCraft trains women artisans and reinvests profits in training, so it is a social enterprise.
1 mark: business with social/environmental aims; 1 mark: profits reinvested to meet these aims (triple bottom line); 1 mark: application to HerCraft.
(b) To obtain finance: the business plan sets out HerCraft's market research, sales forecasts and cash-flow forecast, which the development bank needs before giving a Rs 3 million loan. Also accept: to set objectives and reduce risk, guide decisions.
1 mark for knowledge of the term/concept; up to 2 marks for explaining it in the context of the business (application).
Q20Enterprise and business plans · Standard · Paper 1 style · 5 marks
(a)Analyse one way in which entrepreneurs help the economy of Pakistan.[5]
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(a) Entrepreneurs create new businesses that employ people; for example a new software start-up hires graduates, so unemployment falls, incomes rise and these workers spend more, creating demand for other businesses (multiplier effect) and more tax revenue for the government. Accept: innovation, exports/foreign currency, competition and lower prices.
Chain: entrepreneurship → jobs/innovation/exports → incomes, tax, economic growth. Marks: knowledge 1, application 1, analysis 3. Level 2 (3–5): a developed chain of analysis (cause → effect → impact) applied to this business. Level 1 (1–2): knowledge with limited application; no developed analysis.
Q21Enterprise and business plans · Challenge · Paper 1 style · 12 marks
(a)Evaluate whether a business plan is essential for the success of a new mobile app start-up.[12]
Show answer
(a) Essential: forces founders to research the market and competitors, set objectives, forecast cash flows and costs (apps may take years to earn revenue), and is required by investors and banks, so it helps survival. Not essential: app markets change rapidly — a detailed plan may become out of date quickly; start-ups often succeed by experimenting and changing direction (pivoting) based on user feedback; success depends more on the product, the founders' skills, finance and timing; a plan is only useful if it is realistic and used. Judgement: some form of plan is important, especially to raise venture capital and manage cash, but it should be short and flexible; on its own it does not guarantee success.
Purposes and limitations of business plans, specific to app start-ups (fast change, investor finance, uncertain revenue). Mark scheme: AO1 knowledge 2, AO2 application 2, AO3 analysis 2, AO4 evaluation 6. Level 3 (9–12): developed analysis in context plus a supported judgement that answers the question for this business (e.g. 'it depends on…' weighed, with a clear conclusion). Level 2 (5–8): developed analysis with some, limited or unsupported evaluation. Level 1 (1–4): knowledge and some application; little or no analysis.
Q22Business structure and legal forms · Core · Paper 2 style · 7 marks
Zara runs a travel agency in Multan as a sole trader. She wants to expand by opening a second office and is considering forming a private limited company.
(a)Identify the sector of the economy in which Zara's business operates.[1]
(b)Explain the term 'limited liability'.[3]
(c)Explain one disadvantage to Zara of operating as a sole trader.[3]
Show answer
(a) Tertiary sector.
1 mark: tertiary (services).
(b) The owners (shareholders) of a company are only responsible for its debts up to the amount they invested; their personal assets are safe if the business fails. If Zara forms a private limited company, her house would not be at risk.
1 mark: owners' liability limited to amount invested; 1 mark: personal possessions protected; 1 mark: application.
(c) Unlimited liability: if her travel agency cannot pay its debts, for example after airlines cancel flights and customers demand refunds, Zara's personal assets such as her car could be taken. Also accept: limited capital, long hours, no continuity.
1 mark for knowledge of the term/concept; up to 2 marks for explaining it in the context of the business (application).
Q23Business structure and legal forms · Core · Paper 1 style · 5 marks
(a)Define the term 'public limited company'.[2]
(b)Explain one difference between the public sector and the private sector, using an example of each from the healthcare industry.[3]
Show answer
(a) A company owned by shareholders, with limited liability, whose shares can be bought and sold by the public on a stock exchange.
1 mark: limited liability company owned by shareholders; 1 mark: shares sold to the general public / traded on a stock exchange.
(b) The public sector is owned and controlled by the government, e.g. a government district hospital, and aims to provide a service for everyone; the private sector is owned by individuals or shareholders, e.g. a private clinic, usually aiming for profit.
1 mark: ownership/control (government vs private individuals); 1 mark: objectives (service vs profit) or finance; 1 mark: suitable examples.
Q24Business structure and legal forms · Standard · Paper 2 style · 8 marks
Malik & Sons is a partnership of four brothers that distributes building materials in Lahore. They plan to borrow Rs 40 million to build a new warehouse.
(a)Analyse two advantages for Malik & Sons of converting from a partnership into a private limited company.[8]
Show answer
(a) 1. Limited liability: the partners currently have unlimited liability for the firm's debts, including the Rs 40 million loan for the new warehouse; as shareholders their personal assets would be protected, so they are more willing to take the expansion risk. 2. Easier to raise capital: the company can sell shares to family members or a new investor without changing the partnership agreement, and banks may lend more to a company with separate legal identity and continuity, helping finance the expansion.
Advantages: limited liability, separate legal identity/continuity, raising capital by selling shares (privately), status with suppliers/banks. Mark scheme: AO1 knowledge 2, AO2 application 2, AO3 analysis 4. Level 2 (5–8): two developed chains of analysis, each clearly applied to this business. Level 1 (1–4): knowledge and/or application with undeveloped or generic analysis. Evaluation earns no extra marks.
Q25Business structure and legal forms · Challenge · Paper 2 style · 12 marks
Zarrar Foods Ltd (an invented company) is a family-owned private limited company making spices and sauces. It needs Rs 2 billion to build a new factory. Bank interest rates are 17 %. The family owns all the shares and wants to keep control.
(a)Evaluate whether Zarrar Foods Ltd should become a public limited company to finance its expansion.[12]
Show answer
(a) For: an IPO could raise the large sum (Rs 2 billion) needed for the new factory without debt, keeping gearing low as interest rates are high; listing raises status and makes it easier to borrow later. Against: the family may lose control (more than 50 % of shares sold could allow a takeover); costly to float (fees, prospectus) and must publish detailed accounts; shareholders may pressure for short-term dividends, conflicting with the family's long-term objectives; share prices depend on market conditions. Alternatives: bank loans, private equity, selling shares privately. Judgement: depends on how much the family values control and how much finance is needed; selling a minority stake (e.g. 30 %) through flotation could balance finance and control.
Weigh finance, control, cost of flotation, disclosure, short-termism, alternatives; context of family ownership. Mark scheme: AO1 knowledge 2, AO2 application 2, AO3 analysis 2, AO4 evaluation 6. Level 3 (9–12): developed analysis in context plus a supported judgement that answers the question for this business (e.g. 'it depends on…' weighed, with a clear conclusion). Level 2 (5–8): developed analysis with some, limited or unsupported evaluation. Level 1 (1–4): knowledge and some application; little or no analysis.
Q26Stakeholders · Core · Paper 1 style · 5 marks
(a)Define the term 'stakeholder'.[2]
(b)Explain one difference between a shareholder and a stakeholder.[3]
Show answer
(a) Any individual or group that has an interest in, or is affected by, the activities and decisions of a business (e.g. employees, customers, suppliers, the local community, government).
1 mark: individual or group with an interest in / affected by a business; 1 mark: examples or 'affects or is affected by its decisions'.
(b) A shareholder owns part of a company by holding shares and receives dividends; a stakeholder is a wider group — anyone affected by the business, e.g. local residents near a factory — who need not own any part of it. All shareholders are stakeholders, but not all stakeholders are shareholders.
1 mark each for correct description of each; 1 mark for the difference made clear (ownership).
Q27Stakeholders · Standard · Paper 2 style · 8 marks
Thar Minerals plans to open a second coal mine in the Thar desert. It would create 800 jobs and increase profits by an estimated 30 %. The mine would use large amounts of underground water, and 3 villages would need to move.
(a)Analyse two possible conflicts between stakeholder groups caused by Thar Minerals' expansion.[8]
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(a) 1. Shareholders vs local community: shareholders want the expansion for higher profit and dividends, but villagers face dust, water shortages and loss of grazing land; protests could delay the project and raise costs. 2. Employees vs shareholders: employees want the promised local jobs and higher wages, while managers aim to keep costs low with machinery and contract workers to maximise returns; this may cause disputes. Also: government (revenue) vs environmental groups.
Conflicts identified with reasons for each group's objectives and consequences for the business. Mark scheme: AO1 knowledge 2, AO2 application 2, AO3 analysis 4. Level 2 (5–8): two developed chains of analysis, each clearly applied to this business. Level 1 (1–4): knowledge and/or application with undeveloped or generic analysis. Evaluation earns no extra marks.
Q28Stakeholders · Challenge · Paper 1 style · 12 marks
(a)Evaluate whether shareholders should be the most important stakeholder group for a private hospital.[12]
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(a) Shareholders: they provide the capital and own the hospital; without returns they may sell shares or withhold investment needed for new equipment. Other stakeholders: patients' health and safety must come first — ethically, legally (regulation) and commercially (reputation); doctors and nurses are vital and scarce; the government regulates and may refer patients. Conflicts: profit pressure may lead to understaffing or unnecessary tests. Judgement: in a hospital, patient welfare is a precondition of long-term profit, so shareholders' interests are best served by putting patients (and staff) first; shareholders matter most for strategic financing decisions. Stakeholder priority may shift with circumstances (e.g. during a financial crisis).
Shareholder vs stakeholder concepts; specific to healthcare; supported judgement. Mark scheme: AO1 knowledge 2, AO2 application 2, AO3 analysis 2, AO4 evaluation 6. Level 3 (9–12): developed analysis in context plus a supported judgement that answers the question for this business (e.g. 'it depends on…' weighed, with a clear conclusion). Level 2 (5–8): developed analysis with some, limited or unsupported evaluation. Level 1 (1–4): knowledge and some application; little or no analysis.
Q29Business objectives · Core · Paper 1 style · 5 marks
(a)Explain what is meant by a SMART objective, using an example for a coffee shop.[2]
(b)Explain one reason why a business might change its objectives.[3]
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(a) An objective that is Specific, Measurable, Achievable, Realistic (or Relevant) and Time-bound, e.g. 'increase sales of breakfast items by 15 % within 6 months'.
1 mark: meaning of SMART (at least most letters correct); 1 mark: a valid example meeting all criteria.
(b) Changes in the external environment, e.g. a recession: a growing business may switch from growth to survival or cost reduction because demand falls and cash is short. Also accept: new owners/management, change in competition, stage of business life cycle, achievement of previous objectives.
1 mark for knowledge of the term/concept; up to 2 marks for explaining it in the context of the business (application).
Q30Business objectives · Challenge · Paper 2 style · 12 marks
ClipShare is a new short-video app launched in Pakistan 18 months ago by two founders with funding from a venture capital firm. It has 2 million users, makes a loss and earns revenue only from a small number of advertisements.
(a)Evaluate whether profit maximisation should be the main objective of ClipShare.[12]
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(a) For: investors expect a return; making a profit proves the model works and funds future development. Against: for a new social media platform, network effects mean users and growth (market share) are more important at first — charging or showing many ads too early could drive users to rivals; venture capitalists often accept losses in return for growth; survival (cash flow) may matter more in year one; other objectives (user trust, data security, CSR) protect long-term value. Judgement: in the short term ClipShare should prioritise growth in users and survival; profit maximisation becomes appropriate once a large user base is established — objectives depend on stage of the business life cycle and owners' expectations.
Profit maximisation vs survival, growth, market share, CSR; life cycle; stakeholders (investors). Supported judgement. Mark scheme: AO1 knowledge 2, AO2 application 2, AO3 analysis 2, AO4 evaluation 6. Level 3 (9–12): developed analysis in context plus a supported judgement that answers the question for this business (e.g. 'it depends on…' weighed, with a clear conclusion). Level 2 (5–8): developed analysis with some, limited or unsupported evaluation. Level 1 (1–4): knowledge and some application; little or no analysis.
Similar questions
Questions that test the same subtopic in different years, grouped so you can work on one skill at a time.
References only: find each question in its paper (official link where available, otherwise through your school).
