Topic Tests: Unit 1 Developing New Business Ideas
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Topic Tests: Unit 1
Developing New Business Ideas
1Topic Tests Unit 1: Developing New Business Ideas
For Edexcel‟s Business Studies and Economics & Business
6BS01 and 6EB01
By Ned Browne, Carly Evans and Gerald Wood
Contents
These Topic Tests are designed to give teachers assessment tools, which they may use at the
end of teaching successive sections of Unit 1. There are four tests designed to examine:
1.3.1-2: Characteristics of successful entrepreneurs. Identifying a business
opportunity
1.3.3: Evaluating a business opportunity.
1.3.4-5: Economic considerations. Financing the new business idea.
1.3.6-7: Measuring the potential success of a business idea. Putting a business idea
into practice.
Each Topic Test has three key features:
1. It is laid out in the general format and approach of the Unit 1 examination, and so helps
students to become familiar with the approach which they will face when they sit the Unit.
2. Accompanying each test is a mark scheme, based around Edexcel‟s own mark schemes.
These both assist the teacher in marking students‟ work, and helps students understand why
they scored the mark they did – and what they need to do to improve their mark.
3. Also accompanying each test is a set of suggested answers. These are rather longer than
most students would have time to produce in an examination setting, and also contain more
analysis and detail than students would be expected to know. They will therefore be useful as
a source of further study. They inevitably contain some points of view personal to the
authors and should therefore be seen as an example of how the questions might be tackled.
Except in multiple choice questions, there is of course no such thing as a single „right‟
answer.
Licence
The printed material is sold with a licence to photocopy for the benefit of students and
teachers within the purchasing institution, but not further afield.
Disclaimer
While the authors are all experienced teachers of Edexcel‟s Economics and Business A level,
the endorsement of Edexcel has neither been sought nor given for this work
1st edition, November 2010
2Write your name here
Surname Other name
Centre Number: Candidate Number:
Topic Test 1 of Unit 1
Unit 1: Developing New Business Ideas
Topic Test 1: Characteristics of successful entrepreneurs
& Identifying a business opportunity
Paper Reference
6BS01/01
Time: 1 hour 15 minutes 6EB01/01
You do not need any other materials. Total Marks
Instructions
Use black ink
Fill in the boxes at the top of this page with your name, centre number and candidate number
Answer all questions in both Section A and Section B
You may use a calculator
Information
Total marks for this paper is 70 (roughly 1 mark per minute)
Quality of written communication will be taken into account in the final question, Q 13. This
is indicated with an asterisk* You should take particular care on this question over spelling,
punctuation, grammar and clarity of expression
Advice
Read each question carefully
Keep an eye on the time
Try to answer every question
Check your answers if you have time at the end
3SECTION A Answer all 8 questions in this section. You should spend 30 minutes on this
section. Use the data to support your answers where relevant. You may annotate and include
diagrams in your answers.
1. Many entrepreneurs share similar characteristics. Which one of the following, would
be least likely for an entrepreneur to possess:
A. Confident.
B. Sensitive
C. Hard working
D. Creative
Explain why your answer is correct (1 + 3 marks)
2. Enron, the failed American energy company, were famous for firing 10% of their
workforce every year in an attempt to get them to work harder. Given the
information above, which one leadership style/theory is most likely to describe Jeff
Skilling, the former president of Enron?
A. Democratic and consultative
B. Paternalistic
C. McGregor – Theory X
D. McGregor – Theory Y
Explain why your answer is correct (1 + 3 marks)
3. Wikipedia is a not-for-profit organization. Commentators have suggested that Jimmy
Wales and Larry Sanger (the founders of Wikipedia) would be billionaires if they had
allowed advertising to appear on the website. Which one of the following is least
likely to have been a motivation for the founders:
A. Money
B. A sense of achievement
C. Being in charge
D. Creativity
Explain why your answer is correct (1 + 3 marks)
4. The price of rice has risen 30% in the last 18 months. This is most likely to result in:
A. Demand continuing to increase
B. Fewer paddy (rice-growing) fields
C. A reduction in the demand for pasta
D. An increase in the supply of rice
Explain why your answer is correct (1 + 3 marks)
45. The supply of bananas from the Caribbean fell by 20% in 2010. Which one factor is
least likely to have caused this?
A. A devastating hurricane in the Caribbean
B. The price of bananas fell the year before
C. A steady increase in world incomes
D. Lack of fruit pickers in the Caribbean
Explain why your answer is correct (1 + 3 marks)
6. An outward shift in the demand for housing resulted in house prices rising by 10%
between 2009 and 2010. Which one of the following is least likely to have caused
this increase?
A. There was a general expectation that house prices would increase
B. There was a recession
C. There have been more buyers than sellers
D. Interest rates fell to a very low level
Explain why your answer is correct (1 + 3 marks)
7. The “end of cheap clothes” is near according to a BBC article published on-line in
April 2008. What one reason is least likely to account for this?
A. Garment makers are seeing demand shrink as consumers in the US and Europe
are cutting back on spending
B. Soaring oil prices pushing up the cost of shipping to foreign markets
C. In the US , ever more cotton farmers are switching to more lucrative crops
such as soybeans, corn and wheat
D. Fertiliser costs are increasing
Explain why your answer is correct (1 + 3 marks)
8. Deborah Meaden, one of the Dragons on Dragons‟ Den likes to invest her money in
online companies such as “MyDish.co.uk”. What one reason is most likely to
account for this?
A. She likes buying things online herself
B. She sees greater growth potential in on-line businesses than most people
C. She is an expert in website design
D. The other Dragons are not as interested in online business and therefore there
would be less competition for her
Explain why your answer is correct (1 + 3 marks)
5Section B
Answer ALL the questions in this section.
Evidence A
Globalisation in action - Imagine a Tesco branch where the staff shout out their wares,
packaging is ripped off as a matter of course and meat is squeezed to see if it is still warm and
therefore fresh. These are just some of the oddities to Western eyes that greet the visitor in
Tesco branches all over China. Tesco is an aggressive player in this emerging market. It first
entered China in 2004 through a 50:50 joint venture with a local chain called Hymall or
„Happy Shopper.‟ It now has 62 stores, employs 21,000 people and has a turnover
approaching £1 billion. Analysts believe it may soon overtake the UK as Tesco‟s biggest
market.
The traditional philosophy of Tesco is “our only mantra is customer demand.” This takes on
a whole new meaning in China where the fresh food section is – well, fresh. Dozens of
species of fish swim around in their tanks, while live tortoises have their own enclosures.
There is a brisk line in live turtles too. However, this does not go down well with animal
rights activists who claim their shells are ripped off and they are left alive in agony. Then pig
faces jostle with squid alongside more traditional Chinese products such as huge vats of rice
and seaweed.
In a country where less than 2% of the population own a car, Tesco lays on free public
transport to its front doors. There is also free water, free mobile phone charging points and
free delivery of larger appliances that won‟t fit on the bus home.
Over the next five years, Tesco plans to spend £2 billion in the development of 80 Chinese
shopping centres – with a Tesco store at the heart of each. At 40 million square feet, these
will outstrip their entire UK floor space.
Evidence B
Levi Roots is a reggae musician originally from Jamaica, and now living in Brixton. Better
known as an entrepreneur, he became well-known after making an appearance on the British
TV program Dragons' Den. He was looking for a „business angel‟ to fund "Reggae Reggae
Sauce".
Levi Roots had been selling the sauce at the annual Notting Hill Carnival since the early
1990s. While he has claimed the sauce was based on his grandmother‟s secret recipe, it
seems more likely that it was concocted by his partner on his Carnival barrow.
After his Dragon‟s appearance, his sauce was stocked in Sainsbury‟s where it became an
instant success, selling over 40,000 bottles a week. Blessed with a made-for-TV happy
personality, he has diversified into cook books and television programs as well as being a
promoter of entrepreneurship to young people.
69. Explain two characteristics that Levi Roots is likely to possess that make him a successful
entrepreneur (Evidence B). (6)
10. Explain two non-profit motives that seem to have motivated Levi Roots (Evidence B). (4)
11. Assess the extent to which Tesco‟s market orientation is the key to its success (Evidence
A). (8)
12. Evaluate two ways in which Sainsbury‟s could increase the demand for Reggae Reggae
Sauce (Evidence B). (8)
*13. The number of wild turtles is decreasing. Assess the relationship between the fall in the
number of wild turtles still remaining and the price of turtle meat (Evidence A). (12)
7Topic Test 1 of Unit 1 - Mark scheme, Section A
If part (a) of the question is incorrect, then a maximum of 2 marks can be awarded for
part (b)
A maximum of 2 out of 3 can be awarded for part (b) if the explanation offered is
entirely about why the distracters are incorrect
Award marks for appropriate diagrams
Any acceptable answer which shows selective knowledge/ understanding/ application
and/or development may score full marks
No. Question Marks
1(a) Answer – sensitive (B) 1
1(b) Explain why this answer is correct
Brief explanations of the need for confidence, hard work and creativity
in business (up to 2)
Sensitivity may lead to discouragement when setbacks occur – as they
will (1-2)
Particular regard for other people‟s feelings may make it difficult for
entrepreneurs to take tough decisions (1-2) 1-3
No. Question Marks
2(a) Answer – McGregor – Theory X (C) 1
2(b) Explain why this answer is correct
Brief explanations of why a management style based on paternalism
and/or Theory Y and/or democracy would not fire people so readily
(up to 2)
Simple explanation of Theory X (1); linked to a belief in instilling fear
by terminating low performers on principle (1-2 more)
1-3
No. Question Marks
3(a) Answer – Money (A) 1
3(b) Explain why this answer is correct
The size and usefulness of Wikipedia indicates creativity in setting it
up and developing it; is likely to lead to a sense of achievement; and
will enable its founders to manage a vast empire – linked to
motivation (up to 2)
People who could make vast amounts of money by amending their
business model yet decline to do so are unlikely to have money as
their main motivator (up to 3, if developed)
1-3
8No. Question Mark
s
4(a) Answer – An increase in the supply of rice (D) 1
4(b) Explain why this answer is correct
The increase in price will reduce demand, increase the number of
paddy fields and increase the demand for pasta – any explanations
(up to 2)
Explanation of positive relationship between price and supply;
possible illustration showing supply curve with positive gradient;
reference to price mechanism (up to 3) 1-3
No. Question Marks
5(a) Answer – A steady increase in world incomes (C) 1
5(b) Explain why this answer is correct
Explanation of why a hurricane or a shortage of fruit pickers or a
reduction in the price of bananas is likely to reduce supply (up to 2)
Rising world incomes will lead to higher food consumption, outward
shift in demand curve leading to increased supply – perhaps with
diagram (up to 3)
1-3
No. Question Marks
6(a) Answer – There was a recession (B) 1
6(b) Explain why this answer is correct
Impact of upward expectations, excess demand and low
interest rates on house prices (up to 2)
Impact of recession on GDP; income as a non-price determinant of
demand (up to 3) 1-3
No. Question Marks
7(a) Answer – Garment makers are seeing demand shrink as … (A) 1
7(b) Explain why this answer is correct
B, C and D all raise costs, shifting Supply inwards and increasing the
price. So these are all likely reasons (up to 2)
A reduces demand, shifting D inwards and therefore reducing
equilibrium price and quantity – simple diagram would be one
possible extension (up to 3) 1-3
No. Question Marks
8(a) Answer – She sees greater growth potential in on-line businesses then most 1
people (B)
8(b) Explain why this answer is correct
A and C are not immediately relevant; while D only looks at
competition from one very narrow group of people – so unlikely to be
the main reason (up to 2)
If Deborah sees „great growth potential‟, then this suggests she thinks
sales and therefore profits are likely to increase in the future –
whereupon they provide a good investment opportunity (up to 3) 1-3
9Topic Test 1 of Unit 1 - Mark scheme, Section B
Award marks for appropriate diagrams
Where the question asks for two sections within a single answer, mark the best two if
three or more are given
Any acceptable answer which shows the range of skills required by that question may
score full marks
Q. Explain two characteristics that Levi Roots is likely to possess that Marks
make him a successful entrepreneur (Evidence B).
9 Knowledge 2, Application 4
Knowledge – for identifying two plausible characteristics 1-2
Application: Two further marks per characteristic for commenting
on the characteristic in the context of entrepreneurship 1-4
General: if only one characteristic , cap at 3 Total: 6
Q. Explain two non-profit motives that seem to have motivated Levi Marks
Roots (Evidence B).
10 Knowledge/understanding 2, Application 2
Knowledge/understanding – for identifying two plausible non-profit 1-2
motives
Application: one further mark per characteristic for expanding on 1-2
that characteristic and/or explaining its link to Levi Roots
General: if only one motive, cap at 2 Total: 4
Q. 11 Assess the extent to which Tesco‟s market orientation is the key to its
success. (Evidence A).
Level Marks Descriptor
4 7-8 Evaluation: up to 2 further marks e.g. for evaluating the importance of
market orientation against other conditions for success
3 5-6 Analysis must be present: up to 2 marks – e.g. for commenting thoughtfully
on „the extent to which‟ market orientation is important
2 3-4 Application must be present e.g. identifying from Evidence A features of
Tesco‟s operation in China which point to market orientation
1 1-2 Knowledge/understanding must be present e.g. awareness of what market
orientation means
10Q. 12 Evaluate two ways in which Sainsbury‟s could increase the demand for
Reggae Reggae Sauce (Evidence B).
Level Marks Descriptor
4 7-8 Evaluation: up to 2 further marks for arriving at informed and balanced
conclusions e.g. arriving at a considered judgment as to which of these two
ways is likely to be more successful
3 5-6 Analysis must be present: e.g. for commenting on how effective these two
ways might be
2 3-4 Application must be present e.g. relating those two ways to supermarkets
and/or to Reggae Reggae sauce
1 1-2 Knowledge/understanding must be present e.g. identifying two distinct
ways of increasing demand
Q. The number of wild turtles is decreasing. Assess the relationship between
*13 the fall in the number of wild turtles still remaining and the price of turtle
meat (Evidence A).
Level Marks Descriptor
4 8-12 Evaluation: up to 5 further marks e.g. for looking at two-way causation;
falling numbers of wild turtles push up the price – which leads to even
more hunting of turtles in a vicious circle. A balanced and perceptive
conclusion QWC – to achieve 12, precise and effective use of business
terminology, effectively organised answer, coherent and fluent response,
excellent spelling
3 5-7 Analysis must be present: up to 3 marks e.g. for illustrative diagram with
explanation and/or for considering other possibilities e.g. turtle farms QWC
– Business terminology used quite well, style of writing appropriate to
question, reasonable to good spelling
2 3-4 Application must be present e.g. a falling number of wild turtles means a
reduced supply QWC – some use of business terms, some errors in spelling
1 1-2 Knowledge/understanding must be present e.g. the concepts of supply,
demand, equilibrium
11Topic Test 1 of Unit 1 – Suggested answers
SECTION A: 30 minutes, 8 questions, 32 marks
After choosing the correct answer from one of four options (1 mark), the student then has to
“explain why this answer is correct” (3 marks). A maximum of 2 out of 3 marks are
available if the incorrect option is chosen. Similarly, a maximum of 2 out of 3 marks is
available if the entire focus is on why the other three options were incorrect.
The ideal answer will then contain i) a brief explanation of why the chosen answer is correct,
followed by ii) a brief explanation of why one or two other options are incorrect.
There are 32 marks available and you are advised to spend 30 minutes on Section A – so you
have roughly one mark per minute. Your 3-mark explanations should therefore be short and
to the point.
Question 1 Answer – B
Any entrepreneur will face setbacks, so a degree of confidence will always be needed – as
well as the hard work to back up the business idea. Then the entrepreneur will face new and
unexpected situations where a degree of creativity is required. However, sensitivity is often
less important – particularly if it prevents the entrepreneur from taking the tough decisions
that other people may not like.
Question 2 Answer – C
McGregor‟s Theory X takes as its basis the assumption that employees will do as little as
they can to get paid at the end of the month. A continual threat to their jobs will keep them on
their toes –so Enron (according to this theory) had the right idea. The paternalist and
consultative approaches see the workplace as much more of a partnership, one where a level
of trust is important and constant threats of dismissal have no place.
Question 3 Answer – A
Anyone who sets up a very successful enterprise such as Wikipedia and yet declines to adapt
it so that it makes enormous revenues is unlikely to be motivated by money. This is
particularly the case where (as in the case of Wikipedia) its fundamental mission would not
be significantly affected by advertising. We are therefore left with looking for other
motivations for their founders – perhaps the creativity of bringing to fruition a website of
incalculable benefit to mankind, or the justified sense of achievement they might feel.
Question 4 Answer – D
The supply curve has a positive gradient, reflecting the fact that, other things equal, an
increase in price will result in an increase in supply. This is because, at the increased price, it
makes more sense for rice farmers to devote more time and energy to extracting the
maximum crop from their fields. By contrast, demand is likely to fall when prices increase
(other things equal) as substitute goods such as pasta become relatively more attractive.
12Question 5 Answer - C
A steady increase in world incomes is much more likely to affect the demand for bananas
rather than their supply. For most goods an increase in incomes will lead to an increase in
demand. Of the other options, a hurricane or a shortage of fruit pickers is likely to reduce
directly the crop taken to market, while low prices the year before will have discouraged the
use of scarce resources in economically marginal banana plantations.
Question 6 Answer - B
In a recession house prices normally fall because real GDP is (by definition) declining. This
normally results in some people losing their jobs and other people fearing that they might do
so. Both groups will be reluctant to take on a lot of debt and so are unlikely to buy a house.
This leads to a fall in demand for housing and so a fall in house prices. This is the opposite
of a situation where there are „more buyers than sellers‟ – which is one possible cause of
house price rises.
Question 7 Answer – A
If demand „shrinks‟, then the demand curve will shift inwards. This reduces both the
equilibrium price and equilibrium quantity of clothing – so is very unlikely to result in an
increase in their price. By contrast, all the options B to D are reasons why the costs of
manufacturing clothes might increase – resulting in an inward shift in supply and therefore an
increase in the final price of clothing.
Question 8 Answer – B
Any investor is looking for growth potential. The real way of making money is to spot an
emerging trend before others and then invest in it while the generally more cautious view
makes the investment relatively cheap.
By contrast the other answers all revolve around her personal characteristics – or those of her
immediate colleagues on the show – and these are less likely to be of overall significance for
investment decisions.
13SECTION B: 45 minutes, 4 questions, 38 marks
These questions involve extended writing, and the total of 38 marks are split roughly 10 for
Knowledge/Understanding, 10 for Application, 9 for Analysis and 9 for Evaluation:
Knowledge – show that you know and understand relevant business and economics
concepts
Application - show that you know how these concepts are relevant to the question
asked
Analysis – show that you can make thoughtful observations about the business
situation, using these concepts
Evaluation – come to a balanced and considered conclusion, showing depth of
understanding
Question 9 Explain two characteristics that Levi Roots is likely to possess that make
him a successful entrepreneur (Evidence B). (6 marks)
Levi Roots may well be creative – lots of musicians are. This may be reflected in his
product‟s brand image; „Reggae Reggae sauce‟ sounds a lot more fun than „Heinz tomato
ketchup.‟ Then the creativity needed to be an attractive television personality will also lead
to increased brand recognition – and sales.
Secondly, he appears to be hard-working. He was not too lazy to run a market stall – nor to
capitalize on his initial success by branching out into writing, broadcasting and voluntary
work in schools. Without a certain amount of energy and self-discipline, a clever business
idea is unlikely to translate into high sales and profits.
Question 10 Explain two non-profit motives that seem to have motivated Levi Roots
(Evidence B). (4 marks)
Levi may have been motivated by a desire to help young people. This is certainly suggested
by his work promoting „entrepreneurship to young people‟. Many successful business people
want to „give something back‟ to the community.
Then he may have been motivated by a desire to be well-known and respected. To be a
musician is to be a public performer in front of an audience. Reggae Reggae sauce may well
have given him a much larger audience – and more respect – than simply being a relatively
unknown musician.
Question 11 Assess the extent to which Tesco’s market orientation is the key to its
success. (Evidence A). (8 marks)
One sign of market orientation is the ability to adapt your product to different groups of
customers. Evidence A shows that Tesco has no hesitation about doing this. From the free
transport laid on for shoppers to the live fish and turtles (even if Western animal rights
activists might disapprove) – Tesco shows by its every action that it believes the customer to
be king. This is the essence of market orientation. Furthermore, the fact it has gone into
China with a local partner shows that it realises it does not have all the answers. An
established local food chain like Hymall is likely to understand the Chinese consumer much
better than an outsider like Tesco.
However while market orientation is an essential condition of Tesco‟s success other qualities
are necessary as well. In the Evidence we see signs of strategic planning. Tesco is building
whole shopping centres, not just stores for itself – and is both able and willing to invest very
large sums of money in doing so. The smallest roadside stalls often show „market
orientation‟ – but without financial and management resources (and a great deal of ambition
and hard work) they will never become the next Tesco.
14In conclusion, market orientation is a necessary condition for Tesco‟s success, but it is not by
itself sufficient.
Question 12 Evaluate two ways in which Sainsbury’s could increase the demand for
Reggae Reggae Sauce (Evidence B). (8 marks)
One way would be to reduce the price. It is normally possible to sell more of something by
charging less. The product then becomes more attractive relative to its substitutes. This
could either be achieved by a straight price reduction – which should be well advertised – or
by „special offers‟ such as „three for two‟ or „BOGOF‟ or „limited time only‟ price
reductions. These are common tactics used to drive sales volumes in any supermarket –
though profits will not necessarily increase.
The other way would be to build up brand value – for example by encouraging Levi Roots to
gain maximum exposure on TV, asking him to open new Sainsbury‟s stores, or producing a
whole range of „Reggae Reggae‟ items. It could sell Levi‟s cook books next to his sauce.
Of the two, the second approach is much to be preferred. With its quirky and unconventional
image, people are never going to buy Reggae Reggae sauce because it is the cheapest sauce
on the shelf. And there is the risk of damage to the brand if Sainsbury‟s pursues this
approach too frequently. Rather, it should aim for a top-end brand identity similar to Green
& Blacks in chocolate or Uncle Ben in rice. This will not only „increase the demand‟ but also
increase the profit margin – an equally important objective.
Question *13 The number of wild turtles is decreasing. Assess the relationship
between the fall in the number of wild turtles still remaining and the price of turtle meat
(Evidence A). (12 marks)
The price of turtle meat could rise because of an outward shift in demand. As incomes rise in
China (real GDP has been going up for many years at an astonishing rate of 10% pa) so the
demand for traditional but expensive delicacies like turtle meat will also rise. The higher
price will incentivise suppliers to go out and find more wild turtles to meet the increased
demand – and the number of remaining wild turtles will therefore fall. In this scenario, the
relationship is simply that an increased demand for (and price of) turtle meat will lead to a
fall in the numbers of wild turtles.
The other possibility is that wild turtles suffer habitat loss as Asia industrialises. This will
lead to a reduced supply of turtles. As the supply curve shifts inwards, so the equilibrium
price will rise. The relationship therefore works both ways. A reduction in supply due to
habitat loss will lead to an increased price of turtle meat. And an increased demand for meat
due to rising incomes will increase the price of turtle meat, increase the supply – and so
reduce the numbers of wild turtles left.
In the worst-case scenario, increased prices of turtle meat will lead to ever greater efforts to
catch the remaining few until, in a classic „tragedy of the commons‟, they are driven to
extinction. One way of preventing this outcome would be to establish nature reserves and set
quotas on the numbers of turtles which may be caught. The problem with this solution is that
it is difficult and expensive to administer, and to police. A more effective free-market
solution might be to encourage the setting up of „turtle farms‟, so that suppliers have a secure
source of supply lasting long into the future. The future of the turtle may well depend on the
amount of space a turtle needs, and whether it is therefore practical to breed them in captivity.
If this can be done effectively, then the supply of turtle meat will increase, the price will fall –
and the remaining wild turtles will be relatively safe. There will be little incentive to hunt
them if they can be profitably farmed – as our human ancestors discovered when they left a
hunter-gatherer lifestyle for farming.
15You can also read
