About Understanding business activity in O Level Business Studies
Understanding business activity is one of the 3 main topics in our O Level Business Studies (Cambridge (CAIE) 7115) question bank, and about 28% of its real questions come from it. Tayyari Karo has 25 real questions on this topic from 2021 to 2026, from Paper 1, Paper 2. By difficulty: 15 hard, 10 medium.
Work through the questions below, then open the explanation for each one. Redo the ones you missed a few days later.
Try 6 real questions
These are real past-paper questions. Think of your answer first, then open the explanation.
May/June 2025 · Paper 2 · Understanding business activity
PF is a business owned by Philip.
(a) Explain two advantages and two disadvantages to Philip of changing PF from a sole trader business to a private limited company. [8]
(b) Consider each of the following three methods PF could use to motivate its employees. Which method should PF use? Justify your answer: Paying bonuses; Piece-rate; Job rotation. [12]
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(a) Advantages: limited liability (personal assets protected); easier to raise capital from selling shares. Disadvantages: more administration / legal requirements; shared decision-making / loss of full control; accounts must be published.
(b) Bonuses: reward performance but costly. Piece-rate: pays per unit, may raise output but risks quality. Job rotation: adds variety and motivation but no direct pay link. Candidate must choose one and justify.
Case-study (PF) insert not provided; answers based on syllabus knowledge.
Oct/Nov 2025 · Paper 2 · Understanding business activity
LB is a private limited company. (a) Explain two advantages and two disadvantages of a business being a private limited company. (b) Consider the following three economies of scale for LB. Which economy of scale is likely to have benefited LB the most? Justify your answer. Financial; Purchasing; Managerial.
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(a) [8] Advantages (any two): limited liability; can raise more capital than a sole trader; continuity; shares not sold to public so owners keep control. Disadvantages (any two): more legal formalities/ cost to set up; profits shared; accounts less private; possible conflict among owners. (b) [12] Financial: easier/ cheaper to borrow large sums. Purchasing: bulk buying lowers unit cost. Managerial: can employ specialist managers. Award up to 12 for a justified choice of the most beneficial with comparison.
May/June 2023 · Paper 2 · Understanding business activity
VP wants to expand.
(a) Explain two possible reasons why VP wants to expand. [8]
(b) Consider the benefits and limitations of the following two ways VP can enter a new market in another country. Which way should VP choose? Justify your answer: Joint venture; Franchising. [12]
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(a) Any two of: increase market share; achieve economies of scale; increase profit; diversify risk; use spare capacity.
(b) Joint venture: shares risk and local knowledge but profit is shared and partners may disagree. Franchising: rapid expansion with less capital but less control over quality. Candidate must choose one and justify.
Case-study (VP) insert not provided; answers based on syllabus knowledge.
Oct/Nov 2023 · Paper 2 · Understanding business activity
PH is a public limited company. (a) Explain two advantages and two disadvantages of PH being a public limited company. (b) Consider the following two ways PH could ensure quality production. Which way should PH choose? Justify your answer. Quality control; Quality assurance.
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(a) [8] Advantages (any two, 2 each explained): can raise large capital by selling shares to the public; limited liability; shares easily traded; can grow quickly. Disadvantages (any two): original owners may lose control; must publish accounts; risk of takeover; divided objectives. (b) [12] Quality control: inspects finished products, finds faults late, cheaper to set up. Quality assurance: builds quality in at every stage, prevents errors, but needs training/ culture change. Award up to 12 for a justified choice comparing both.
Oct/Nov 2022 · Paper 2 · Understanding business activity
SA is a business owned by Tokumbo. (a) Explain four business objectives Tokumbo could set for SA. (b) Consider the opportunities and threats of e-commerce for SA. Which is likely to have the greatest effect on SA? Justify your answer.
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(a) [8, 2 each] Any four from: survival; profit; growth/ market share; providing a service; social/ ethical objectives; customer satisfaction; quality. (b) [12] Opportunities: wider market reach, lower costs, 24/7 sales. Threats: more competition, security/ fraud risk, need for technology. Award up to 12 for a justified choice comparing opportunities and threats; either may be selected if well argued.
Oct/Nov 2022 · Paper 2 · Understanding business activity
Tokumbo is a sole trader. (a) Explain one advantage and one disadvantage to Tokumbo of being a sole trader. (b) Using Appendix 3 and other information, consider the three options for the future growth of SA. Which option should Tokumbo choose? Justify your answer using appropriate calculations.
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(a) [8, 4 each] Advantage: keeps all profits; full control of decisions; easy to set up; unlimited liability is the downside. Disadvantage: unlimited liability; limited sources of finance; heavy workload; no one to share decisions. (b) [12] Award for using the data in Appendix 3 to compare options (e.g. cost, return, risk) and selecting one with clear, calculated justification. Any option can be chosen if supported by the figures.
