Pearson Edexcel A-level Economics A
Theme 3 Business behaviour and the labour market
This Answers document provides suggestions for some of the possible answers that might be given for the questions asked in the workbook. They are not exhaustive and other answers may be acceptable, but they are...
pearson edexcel a level economics a theme 3 business behaviour and the labour market this answers document provides suggestions for some of the possible answers that might be given for the questions
Pearson Edexcel A-level Economics A
Theme 3 Business behaviour and the labour market
This Answers document provides suggestions for some of the possible answers
that might be given for the questions asked in the workbook. They are not
exhaustive and other answers may be acceptable, but they are intended as a
guide to give teachers and students feedback.
The student responses (green text) for the longer essay-style questions are
intended to give some idea about how the exam questions might be answered.
The examiner comments (blue text) have been added to give you some sense of
what is rewarded in the exam and which areas can be developed. Again, these
are not the only ways to answer such questions, but they can be treated as one
way of approaching questions of these types.
The abbreviation KAA stands for Knowledge, Analysis and Application, and EV
stands for Evaluation.
Topic 1
Business growth and objectives
Sizes and types of firm
1 Possible answers include the following, up to 2 marks:
• Where the owners of a company are unable to control the business directly (1
mark).
• For example, shareholders own the company but appoint
directors/managers to run the business on a day-to-day basis (1 mark).
• This is an example of the principal–agent problem (1 mark).
2 Possible answers include the following, up to 2 marks for a developed point:
• A public-sector organisation is owned and run by the government (or
state) (1 mark), whereas a private-sector organisation is not/is run by
individuals (1 mark).
, TOPIC 1 Business growth and objectives
• A public-sector organisation often provides services for the public, such
as the NHS, that are free at the point of use (1 mark), whereas the
private sector will provide goods and services, including for-profit
businesses (1 mark).
3
a 2 marks for the following:
• Economies of scale are a reason for companies to grow (1 mark).
• Any reason for gaining economies of scale (1 mark):
– e.g. by growing a firm can increase quantity and gain lower long-
run average costs
– e.g. operating on a larger scale can provide a barrier to entry/allow limit
pricing
b 2 marks for the following:
• Targeting niche markets is a reason why firms stay small (1 mark).
• Any reason for targeting niche markets (1 mark):
– e.g. a business may still be able to be profitable on a small scale by
targeting a small market (possibly unreached by larger rivals)
– example of niche markets, such as Fairtrade chocolate
4 Possible answers include the following, up to 3 marks per point identified,
explained and applied to Oxfam:
• Reduced donations/reduced income
(e.g. people will switch donations to other charities)
• Need to reduce costs
(e.g. examples of cost cutting at Oxfam)
• Damage to brand image
(e.g. long-term damage to brand affecting donations)
• Reduced ability to pursue social aims
(e.g. due to lower profits / ban from operating in Haiti)
• Issues of recruitment
(e.g. may not be able to recruit the best staff following the scandal)
, TOPIC 1 Business growth and objectives
Business growth
5 1 mark for correct type of growth and 1 mark for brief explanation.
a 2 marks for the following:
• Conglomerate integration (1 mark)
• This is because Google and YouTube are in totally different industries (1 mark).
NB Accept a clear explanation of external growth for up to 2 marks.
b 2 marks for the following:
• Organic growth (1 mark) or internal growth (1 mark)
• This is because IKEA is expanding itself (via more stores) rather than
taking over another firm (1 mark).
c 2 marks for the following:
• Vertical backwards integration (1 mark)
• This is because Amazon is taking over publishers that are in the same
industry but at a previous stage of the chain of production (1 mark).
NB Accept a clear explanation of external growth for up to 2 marks.
6
a 2 marks for any of the following (1 mark for identification and
1 mark for development):
• Lack of synergy (1 mark): firms do not gain the expected benefits from
working as a larger company (1 mark).
• Diseconomies of scale (1 mark): if the firm has grown too large, the long-
run average costs may rise, such as due to poor
communication/coordination (1 mark).
• Loss of focus (1 mark): some businesses may be focused on too many
markets and become less focused on their core business, which they
predominantly get profits from (1 mark).
• Selling off unprofitable businesses (1 mark): this could be to cut the
losses of that business or to boost the share price of the remaining
firm(s) (1 mark).
• To raise finance (1 mark): this could then be used to reinvest into the
remaining part of the business, such as product development (1 mark).
b 2 marks for any of the following (1 mark for identification and
1 mark for development):
• Improved product quality (1 mark):
, TOPIC 1 Business growth and objectives
– e.g. due to improved focus/reinvesting funds from the demerger (1 mark).
– e.g. due to greater competition as more firms in the market (1 mark).
– e.g. due to cost savings from greater efficiency/fewer
diseconomies of scale (1 mark)
– e.g. due to greater competition driving down prices (1 mark)
• Greater choice of products (1 mark):
– e.g. as more firms in the market after the demerger (1 mark)
– e.g. due to greater levels of competition/funds available to widen
product range (1 mark)
7 2 marks for correct type of integration and accurate definition:
• Identification of horizontal integration (1 mark)
• This is where a firm takes over/merges with a firm in the same industry
and at the same stage of production (1 mark).
8 Two benefits explained in the context of ASDA/Sainsbury’s for 2 marks;
analysis = 6 marks:
• Less competition/more market power/higher profits (1 mark): e.g. ASDA
and Sainsbury’s would gain a greater combined market share of over
30% (1 mark) and therefore they may be able to raise prices (1 mark).
• Cost savings/ability to compete on price (1 mark): e.g. if they merged,
ASDA and Sainsbury’s would be able to reduce costs that are duplicated
between the firms (1
mark), which could boost profitability/allow them to compete
with low-cost supermarkets (1 mark).
• Greater monopsony power (1 mark): e.g. ASDA and Sainsbury’s would
become a more powerful buyer (1 mark) and therefore would be able to
negotiate lower prices from suppliers (1 mark).
• Economies of scale (1 mark): e.g. ASDA and Sainsbury’s would have a
greater ability to gain better deals from the bank (1 mark) due to lower
risks because the combined firm is likely to be more profitable/larger (1
mark).
NB Economies of scale can count as more than one point if different types are explained.
Evaluation = 2 marks for one point developed or two points identified, such as:
• The merger has been blocked and therefore the benefits are only theoretical.
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