✦ 1.1 Paper 1 · 0450 Difficulty: Easy–Medium

Unit 1: Business and its Environment
Business Activity

The foundation of the entire course — why businesses exist, the problem of scarcity, factors of production, and how value is added.

2Papers

6Marks per Q

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Examiner tip — always link to the business in the question

For “explain” questions use a two-step structure: state your point, then explain the consequence using “this means…” For 6-mark questions, give two distinct ways with a separate explanation for each. Never repeat the same point in different words.

Key Concepts to Revise

Purpose of Business Activity

Businesses combine factors of production to produce goods and services that satisfy needs and wants

They add value — outputs are worth more than the inputs used to make them

The Problem of Scarcity

Resources are limited but human wants are unlimited

Every choice has an opportunity cost — the next best alternative forgone

Factors of Production

Land — natural resources

Labour — human effort

Capital — man-made resources (machinery, buildings)

Enterprise — organises the other three; takes risks

Needs vs Wants

Needs — essentials for survival: food, water, shelter, clothing

Wants — non-essential desires. Unlimited, but resources to satisfy them are scarce

Adding Value

Added value = Selling price − Cost of bought-in materials

Methods: branding, quality, unique design, packaging, speed/convenience of service

Opportunity Cost

The next best alternative forgone when a decision is made

Always name the specific alternative given up — e.g. “by spending $10 000 on new machinery, the business gives up the opportunity to invest in staff training”

Past Paper Questions

3 papers

Select Paper

0450/11/M/J/2025

Unit 1.1 · Business Activity

Case Study

Avtar owns a car repair business which operates in the private sector. It is a small business with 2 full-time employees. Avtar wants to find out the best way for a business to increase added value. Avtar’s business needs finance for many reasons. Avtar wants to know how an economic recession might affect his business.

(d)

Explain two ways Brendan could increase added value for his business.

[6]

Way 1:

Explanation:

Way 2:

Explanation:

0450/12/M/J/2024

Unit 1.1 · Business Activity

Case Study

(e)

Explain two ways a business can increase added value. Which is likely to be the best way for a business to use? Justify your answer.

[6]

Way 1:

Explanation:

Way 2:

Explanation:

Justified answer:

0450/12/F/M/2024

Unit 1.1 · Business Activity

Case Study 1

TCH is a small bakery producing pastries and cakes. It operates in the secondary sector. The added value of TCH’s products has increased since it opened 3 years ago. TCH uses non-financial methods to motivate its 6 employees. TCH’s business objectives have changed since it started up. One of its new objectives is to expand. Many businesses use external recruitment when they expand.

(a)

Define ‘added value’.

[2]

Case Study 2

WFH produces hats and sells them to a mass market. It holds a high level of inventory. The Managing Director is concerned about the liquidity of the business and has been analysing WFH’s financial statements. An extract is shown in Table 2.1. The Managing Director thinks that the business might fail. Other stakeholder groups might also be interested in WFH’s financial statements.