UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS

International General Certificate of Secondary Education

MARK SCHEME for the May/June 2011 question paper

for the guidance of teachers

0450 BUSINESS STUDIES

0450/12 Paper 1 (Short Answer/Structured response),
maximum raw mark 100

This mark scheme is published as an aid to teachers and candidates, to indicate the requirements of
the examination. It shows the basis on which Examiners were instructed to award marks. It does not
indicate the details of the discussions that took place at an Examiners’ meeting before marking began,
which would have considered the acceptability of alternative answers.

Mark schemes must be read in conjunction with the question papers and the report on the
examination.

• Cambridge will not enter into discussions or correspondence in connection with these mark schemes.

Cambridge is publishing the mark schemes for the May/June 2011 question papers for most IGCSE,
GCE Advanced Level and Advanced Subsidiary Level syllabuses and some Ordinary Level
syllabuses.
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This mark scheme includes a summary of appropriate content for answering each question. It
should be emphasised, however, that this material is for illustrative purposes and is not
intended to provide a definitive guide to acceptable answers. It is quite possible that among
the scripts there will be some candidate answers that are not covered directly by the content
of this mark scheme. In such cases, professional judgement should be exercised in assessing
the merits of the answer.

Examples of possible answers are also included in this mark scheme. Again, it should be
emphasised that this is for illustrative purposes and the examples chosen represent only
some of the many possible responses that would merit reward.

© University of Cambridge International Examinations 2011

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1 (a) What is meant by the term ‘niche market’? [2]

For 2 marks must have reference to idea of ‘small part of market’ and ‘specialised’.

Niche market is a specialised sub-part of a larger market with specific characteristics [2].
Some understanding [1] e.g. small part of a market [1].
Do not accept ‘small market’ [0].

(b) Identify two objectives that Ceri might have had for his business when he started it. [2]

Objectives might include growth/profitability/survival/breakeven/gaining reputation/added

value/ providing service/brand loyalty.

One mark per objective [2 × 1].

(c) Identify and explain two advantages to Ceri of converting the business to a private
limited company. [4]

Knowledge [2 × 1]:
• separate legal identity from owner
• limited liability
• increases ability to raise funds/sell shares (to friends and family).

Analysis [2 × 1]: explanation must show why the point creates an advantage to Ceri e.g.
limited liability [k] so owner only loses amount invested in company [an].

(d) Identify and explain three potential problems to Terfil Enterprises of continuing to
grow in the future. [6]

Knowledge [3 × 1]:
• business becomes more complex to manage/diseconomies of scale
• may lose focus on niche market/lose contact with customers
• growth limited by size of market
• lack of capital to finance growth
• new geographical market
• increase in expenditure/cost.

Do not accept more competition alone as knowledge point. It must be developed in reference
to a niche market.
Do not accept cash flow problem as it is a short-term issue.

Application/analysis [3 × 1]: explains how it might be a problem for the business e.g. Ceri
begins to find it much more difficult to manage the business [k], and starts to make
mistakes/poor decisions [an].

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(e) How important are low prices in determining the long-term success of Terfil
Enterprises? Justify your answer. [6]

Knowledge of relevant factors that affect long-term success [2].

Points might include:

• low prices encourage demand
• product/promotion/place
• competition
• reputation
• availability of finance.

Analysis of factors [2]: explain how or why the factor might be an issue.

Evaluation [2]: justified decision related to long-term success based on points raised.

2 (a) What is meant by the term ‘fixed assets’? [2]

Assets that are owned by a business [1] and are held for a period of time (usually in excess
of a year) [2].
Some understanding [1] e.g. ‘things that are owned’.
Some understanding plus example e.g. buildings can gain 2 marks.
Do not credit example on its own.

(b) Identify two examples of Telefax’s current liabilities. [2]

Knowledge [2 × 1]:
• overdraft
• creditors/payables
• accruals
• outstanding tax
• short-term loans.
One mark per example [2 × 1].

Do not accept amounts owed e.g. electricity owed.

(c) Identify and explain two reasons why most businesses have debtors. [4]

Knowledge [2 × 1]:
• debtors can be used as a marketing device
• standard practice in the industry
• customers don't pay/can't pay.

Analysis [2 × 1]: explanation must show why the factors identified occur e.g. marketing
device [k] can encourage customers to buy more goods as they are able to pay later [an].

© University of Cambridge International Examinations 2011

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(d) Identify and explain three reasons why Telefax’s bank manager might want to see the
accounts of the business. [6]

Knowledge [3 × 1]:
• can be used to assess financial strength/assess risk
• profitability
• liquidity
• gearing.
Do not accept answers which refer to how the business would use the accounts.

Analysis [3 × 1]: explanation must focus on the reason why the information that can be
learned from the accounts actually would be of interest to the bank manager.
E.g. check cash flow before giving loan [k] to make sure business can pay back [an].

(e) Do you think that the financial position of Telefax has improved in 2010? Justify your
answer. [6]

Knowledge of significant changes shown by accounts [2].

• current ratio improve
• gearing ratio increased
• fixed assets increased
• current assets increased more than current liabilities
• long-term liabilities increased
• the rise in the value of net assets financed by an increase in long-term debt.

Analysis of changes [2] can be quantitative or qualitative.

• current ratio improves from 1:1 to 1.2:1/improved so can meet short-term liabilities more
easily
• gearing ratio from 33% to 45%
• fixed assets increased by $10 million
• current assets increased faster than current liabilities by $4 million
• long-term liabilities increased significantly from $10m to $20m
• the rise in the value of net assets financed largely by an increase in long-term debt.

Evaluation [2]: justified decision related to whether financial position has improved.

© University of Cambridge International Examinations 2011

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3 (a) What is meant by the term ‘organisational structure’? [2]

Clear understanding of term [2] e.g. refers to level of management and division of
responsibilities within an organisation/shows the roles of people in an organisation and the
relationship between them.
Some understanding [1] e.g. ‘how a business is organised’.

(b) What is meant by ‘communication in the business is poor’? [2]

Clear understanding [2]: communication refers to the process by which information is

exchanged between one group and another [1]. If it is poor this process is not functioning
effectively [+ 1].

A one-mark answer will refer only to communication or the concept of ‘poor’, e.g. message is
not getting through [1].

(c) Identify and explain two advantages of delegating tasks in an organisation. [4]

Knowledge [2 × 1]:
• work-load spread more evenly
• give responsibility to lower rank employees
• management can focus on more important matters
• motivational factor for employees
• improved efficiency.
Note: advantages can be for employee, manager or business.

Do not accept ‘faster’ and ‘effective’ alone as knowledge points. These can be used as part
of an explanation.

Analysis [2 × 1]: show how or why the point identified creates an advantage e.g. gives
responsibility to lower rank employees [k] which may increase motivation and job satisfaction
[an].

(d) Identify and explain three reasons why meetings between managers and workers can
benefit the business. [6]

Knowledge [3 × 1]:
Benefits might include:
• interchange of ideas
• better understanding of other people’s points of view/opinions
• improves communications
• increases sense of unity of purpose and motivation
• better decision-making
• problem-solving.

Analysis [3 × 1]: explains how or why it is a benefit to the business.

E.g. workers can put forward ideas [k] which help the business cut costs [an].

© University of Cambridge International Examinations 2011

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(e) How effective is money in motivating workers? Justify your answer. [6]

Knowledge of motivational factors [2]:

• money
• personal satisfaction
• social needs, etc.

Analysis of issues [2]: explain how money may or may not motivate workers.

Do not accept benefits for the business.

Evaluation [2]: justified decision as to effectiveness of money to motivate workers based on

points raised, e.g. motivation refers to the attitude that people have towards their work. [k]
Money clearly can help motivation by increasing the financial rewards [k] and hence making
work more attractive [an]. However money alone cannot motivate if other factors are lacking
[e].

4 (a) What is meant by the term ‘market leader’? [2]

Clear understanding [2] e.g. business with largest percentage of total sales revenue/share of
the market [in terms of sales, revenue or output] or biggest share of market.

Some understanding [1] e.g. largest business in market/big market share/business with a
monopoly.

(b) Calculate the value of Delwar’s sales in 2010. [2]

Accurate calculation or correct answer [2]. Method alone [1].

$ sign not needed
60% of $50m [1] = $30m [2] must have millions (m) for 2 marks.
Correct method i.e. 40% of $50m [1] but $20m alone [0].

(c) Identify and explain two possible reasons why the market for car tyres in country Z is
no longer growing. [4]

Knowledge [2 × 1]:
• recession
• market saturated/demand for cars static or falling
• increased use of public transport/environmental concerns
• increase in price of cars/fuel/tyres
• better quality product
Note: answers must refer to total market for tyres in country Z and not just Delwar.

Application/analysis [2 × 1]: explanation to show how or why the factor affects the market
for tyres, e.g. in a recession [k] people likely to have less money and buy fewer cars/tyres
[an].

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(d) Identify and explain three methods Delwar could use to increase its market share in
country Z. [6]

Knowledge [3 × 1]:
• improved quality of products
• widened product range
• bought out rivals/takeover/merge
• promotion/advertising
• pricing
• improved customer service
• more sales outlets.

Do not allow exporting to/importing from other countries.

Analysis/application [3 × 1]: explains how method helps increase market share e.g. short-
term price promotion [k] to encourage more customers to buy more products as they are
cheaper [an].

(e) Do you think Delwar’s profits would increase if the business were to export its tyres?
Justify your answer. [6]

Knowledge [2]:
Points could include:
• advantages and disadvantages of exporting
• factors affecting profitability
• government influences
• exchange rates
• productive capacity
• access to new market/customers.

Analysis of factors [2]: show why or how that factor is an issue.

Evaluation [2]: justified decision related to Delwar's profit based on points raised, e.g.
exporting could increase sales [k] and assuming positive margins this should increase profits
[an]. The current domestic market is static and hence if no exports then sales might well fall
in future [an]. However exporting incurs costs [k]. If the process is unsuccessful then the
extra income may not cover these [an]. So potentially exporting should increase profits but
this is not inevitable [e].

© University of Cambridge International Examinations 2011

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5 (a) What is meant by a ‘financial benefit’? [2]

Clear understanding [2]: e.g. monetary benefit [1], internal to the business [+1], profit
business makes [2].
Some understanding [1]: e.g. a benefit received by a business [1] or money benefit e.g.
profit/money/cost saving, but no indication as to the recipient [1].

(b) Identify two examples of social costs that extraction of minerals might create. [2]

Knowledge [2 × 1]:
Environmental/visual pollution/destruction of an area/noise/depletion of resources.

One mark per example.

(c) Identify and explain two ways in which pressure groups could influence Extracto’s
decisions. [4]

Knowledge [2 × 1]:
Points might include:
• creating negative publicity/publish information
• demonstrations/protests/rally opposition against the company
• highlight the social costs of the activities/make complaints
• lobby politicians/company etc
• boycott products
• law suits.

Do not accept Trade Union activities/strikes/picketing.

Analysis [2]: explain how the action might influence the decisions of the business.

Arrange boycott [k] of products could mean lower sales thus lower sales revenue might
cause business to rethink [an].

(d) Identify and explain three factors that Extracto should consider before deciding
whether to begin mining in country X. [6]

Knowledge [3 × 1]:
• government rules/financial incentives/approval to proceed
• specific costs associated with given site
• infrastructure
• availability of suitable workforce
• external economies of scale
• financial viability.
Note: factors must be appropriate for a mining company.

Do not accept social costs and social benefits.

Do not allow power and water as separate points.
Do not accept location on its own as a knowledge point. Only accept it in relation to
accessibility, transport etc.

Analysis of importance [3 × 1]: explain how and why factor needs to be considered,
e.g. a transport network will be necessary [k] to get equipment into the site and products out
easily [an].

© University of Cambridge International Examinations 2011

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(e) Governments often aim to attract multinational companies into their countries. Do you
think that they should do this? Justify your answer. [6]

Knowledge of issues [2]:

• multinationals create jobs
• encourage inward investment
• help develop skills and expertise/train local work force
• generate spending power
• exploitation of workers/resources
• lack of respect for local customs and cultures
• lead to flow of profits out of a country
• competition for local businesses.

Analysis of issues [2]: explain how or why the issue affects government decisions.

Evaluation of issues [2]: justified decision related to whether government should try to attract
multinationals. E.g. multinationals help develop skills and expertise [k], by investing money in
training the local workforce [k]. This would increase employment opportunities and spending
power within the local economy [an]. However they can lead to exploitation and lack of
respect for local customs and cultures and lead to flow of profits out of a country. So issue is
not clear-cut [e].

© University of Cambridge International Examinations 2011