topic tests: unit 1 developing new business ideas · 2 topic tests unit 1: developing new business...

1

Topic Tests: Unit 1

Developing New Business Ideas

2

Topic 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

3

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

Write your name here

Centre Number: Candidate Number:

Topic Test 1 of Unit 1

Surname Other name

Unit 1: Developing New Business Ideas

Topic Test 1: Characteristics of successful entrepreneurs

& Identifying a business opportunity

Time: 1 hour 15 minutes

Paper Reference

6BS01/01

6EB01/01

You do not need any other materials. Total Marks

4

SECTION 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


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


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


5

5. 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


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


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


6

Section 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.

7

9. 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)

8

Topic 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


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


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

9

No. Question Mark

s

4(a) Answer – An increase in the supply of rice (D) 1


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


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


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


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

people (B) 1


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

10

Topic 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

make him a successful entrepreneur (Evidence B).

Marks

9 Knowledge 2, Application 4

Knowledge – for identifying two plausible characteristics

Application: Two further marks per characteristic for commenting

on the characteristic in the context of entrepreneurship

General: if only one characteristic , cap at 3

1-2

1-4

Total: 6

Q. Explain two non-profit motives that seem to have motivated Levi

Roots (Evidence B).

Marks

10 Knowledge/understanding 2, Application 2

Knowledge/understanding – for identifying two plausible non-profit

motives

Application: one further mark per characteristic for expanding on

that characteristic and/or explaining its link to Levi Roots

General: if only one motive, cap at 2

1-2

1-2

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

11

Q. 12 Evaluate two ways in which Sainsbury‟s could increase the demand for

Reggae Reggae Sauce (Evidence B).


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.

*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).


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

12

Topic 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.

13

Question 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.

14

SECTION 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.

15

In 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.

topic tests: unit 1 developing new business ideas · 2 topic tests unit 1: developing new business...

Documents