Cambridge IGCSE · 0450

Business Studies

Business activity and people — Topics 1-2

Name: ____________________Date: October 14, 2026

1.
A small bakery changes from sole-trader ownership to a private limited company. Explain one advantage and one disadvantage of this change for the owner.
[4 marks] · no calculator
Marking points
- Identifies limited liability or improved access to capital as an advantage.
- Applies the advantage to protection of the owner's assets or business growth.
- Identifies added legal requirements, disclosure, cost or shared control as a disadvantage.
- Applies the disadvantage to the bakery owner's decisions or workload.
Examiner tip: Application means connecting each point to the business described, not giving a generic definition.
2.
A firm employs 80 people. During the year, 12 employees leave. Calculate labour turnover and state one possible consequence of a high result.
[4 marks]
Marking points
- Uses labour turnover = number leaving ÷ average number employed × 100.
- Calculates 12 ÷ 80 × 100.
- Obtains 15%.
- States a plausible consequence such as recruitment/training cost, lost experience or disrupted output.
Examiner tip: Show the formula and percentage sign before interpreting the figure.
3.
A company that catches fish, a company that cans the fish, and a company that sells the canned fish in shops belong respectively to which sectors? A All primary B Primary, secondary, tertiary C Secondary, tertiary, primary D All tertiary
[1 mark] · no calculator
Marking points
- Selects B: catching fish is primary (extracting a raw material), canning it is secondary (manufacturing), and selling it is tertiary (a service).
Examiner tip: The three sectors follow the order a raw material travels: extracted (primary), processed into a product (secondary), then sold or serviced (tertiary).
4.
A furniture maker buys wood worth $50 and turns it into a chair that sells for $200. Explain the concept of added value in this example.
[2 marks] · no calculator
Marking points
- Explains that added value is the difference between the selling price and the cost of the bought-in materials.
- Calculates or identifies this difference as $150 in this example, created through the maker's skill, design and labour.
Examiner tip: Added value is created by the production process itself — the skill and labour that transform a cheaper input into a more valuable output.
5.
Explain what is meant by limited liability, and why this might encourage someone to invest in a company.
[2 marks] · no calculator
Marking points
- Explains that limited liability means an owner can only lose the amount they invested in the business, not their personal possessions.
- Explains that this reduces the financial risk of investing, making people more willing to buy shares.
Examiner tip: Limited liability protects personal assets such as a house or car if the business fails and cannot pay its debts.
6.
Explain one advantage to two friends starting a business together of forming a partnership rather than each operating as a separate sole trader.
[2 marks] · no calculator
Marking points
- States an advantage such as shared capital, shared workload, or combined skills and expertise.
- Explains how this benefits the new business, such as having more funds to start up or covering a wider range of tasks.
Examiner tip: A partnership pools resources and skills from more than one person, which a sole trader does not have access to.
7.
Explain one reason why a growing private limited company might choose to become a public limited company by selling shares on a stock exchange.
[2 marks] · no calculator
Marking points
- Explains that becoming public allows the company to sell shares to the general public, raising a much larger amount of capital.
- Links this extra capital to a specific use, such as funding major expansion or new investment.
Examiner tip: A stock exchange listing opens a company to a vastly larger pool of potential investors than a private limited company can access.
8.
Explain what is meant by a social enterprise, and how it differs from a typical profit-driven business.
[2 marks] · no calculator
Marking points
- Explains that a social enterprise trades to achieve a social or environmental aim, not purely to maximise profit for owners.
- States that it typically reinvests most or all of its profit back into this social aim, rather than distributing it to owners.
Examiner tip: A social enterprise still earns revenue like a normal business, but profit is a means to a social goal, not the main goal itself.
9.
Explain the difference between internal growth and external growth for a business.
[2 marks] · no calculator
Marking points
- Explains that internal (organic) growth happens through a business's own efforts, such as opening new branches or increasing sales from existing operations.
- Explains that external growth happens by joining with another business, such as a merger or takeover.
Examiner tip: Internal growth builds on what the business already has; external growth combines with another existing business.
10.
Explain why survival, rather than maximising profit, is often the main objective of a business in its first year of trading.
[2 marks] · no calculator
Marking points
- Explains that a new business typically has few customers, limited cash, and low brand awareness.
- Explains that in these conditions, simply covering costs and remaining operating is a more realistic and urgent priority than maximising profit.
Examiner tip: A business cannot pursue ambitious profit targets if it is at risk of running out of cash and closing down first.
11.
A large multinational car manufacturer opens a new factory in a developing country. Analyse one benefit this could bring to that country.
[2 marks] · no calculator
Marking points
- Identifies a benefit such as new jobs created for local workers.
- Explains a further positive effect, such as workers gaining new skills and training, or the government collecting more tax revenue.
Examiner tip: Multinational investment can bring jobs, skills and tax revenue, though it can also raise concerns such as profits leaving the country.
12.
An entrepreneur's own skill in organising land, labour and capital to start a new business is itself a fourth factor of production, known as: A Land B Labour C Capital D Enterprise
[1 mark] · no calculator
Marking points
- Selects D: enterprise, the skill of combining the other factors of production and bearing the risk of a new business.
Examiner tip: Enterprise is the organisational and risk-taking factor, distinct from the physical resources of land, labour and capital.