FORM 3

END TERM 1

MARKING SCHEME
1. Challenges faced by a business without a business plan
i) Workers will not be motivated.
ii) Since financiers need this document, it will be difficult to access more finances.
iii) There will be very many mistakes
iv) It will not be able to identify strengths and weaknesses
v) It will be difficult to know the finances required.
vi) Allocation of resources will be difficult.
vii) Potential investors will not have a reference document

2. Gaps in a business
i) Poor quality goods and services
ii) High prices of products
iii) Low quantities
iv) Unavailability of a given product in the market
v) Lack of after sales services
vi) Lack of varieties of goods and services

3. Differences between direct production and indirect production.

Direct production Indirect production

i) Production is meant for one’s Production is meant for sale
own consumption
ii) Production is done on small Production is done on large scale
scale
iii) Poor quality produce High quality produce
iv) Simple methods of production Modern technology extensively used
used i.e no use of machines
v) No specialization There is specialization
vi) No surplus production There is surplus production for the market

4. Ways in which commercial attatches may promote trade between their country and other
countries

i) Assist in organizing trade fairs and exhibitions

ii) Advise exporters on standards and legal requirements
iii) Carrying out market research
 iv) Provide information about business opportunities
v) Aid in facilitating payments

5. Differences between insurance and assurance

Insurance Assurance
i) Has no surrender value Has a surrender value
ii) The insurance contract is Insurance contract is for life and does not
renewed yearly require renewing
iii) Has no maturity date Has maturity date
iv) There must be proof of There is no proof of insurable interest
insurable interest
v) Risk insured may or may not Risk insured against must happen
happen
vi) Principle of subrogation/ Principle of subrogation/Indemnity does
Indemnity applies not apply
vii) Cannot be used as a saving Can be used as a saving scheme
scheme
viii) Protection is offered to property Protection is offered to life

6. Ways in which consumers benefit from advertising

i) Consumers get entertained from the adverts
ii) It informs consumers about offers in the market
iii) Consumers are guided on where to get the products
iv) Consumers enjoy a variety of products
v) Competitions lead to quality products
vi) Consumers are made aware of the products in the market
vii) Consumers get cheaper prices due to competition

7. Features of monopolistic competition.

i) Firms set similar prices
ii) There is free entry and exit
iii) Factors of production are not controlled
iv) There is perfect knowledge in the market
v) Sellers sell differentiated products
vi) There are many buyers and sellers
vii) Actions of one firm are closely monitored by other firms

8. Requirements for one to start a limited liability company as one of the business units
i) Memorandum of association
ii) Article of association
 iii) List of directors
iv) Declaration of compliance
v) Statement of share capital showing the total amount of capital that the company
wishes to raise and it’s division into shares

9. Characteristics of a chain store

i) Similar shop appearance and name
ii) Sell similar types of products
iii) Charge standard prices for their products
iv) All purchases are centralized
v) Goods are freely transferable from one branch to another
vi) Administration is done from the head office
vii) Operate several branches in the country
viii) Sales are decentralized

10. Reasons why E-mail is increasingly becoming popular as a means of communication

i) It is relatively cheap
ii) It is fast
iii) It can be used for future reference
iv) There is easy access to information
v) There is easy retrieval of information
vi) It is confidential in nature
vii) It has immediate feedback
viii) It is used worldwide
ix) One can send detailed information through attatchment of documents.

11. Causes of shift of the demand curve to the right( Must qualify)

i. increase in the level of consumer incomes

ii. Increase in the price of substitute goods

iii. Decrease in price of a complimentary

good.

iv. Population increase

v. Future expectation of an increase in

price

vi. Favorable government policiese.g low

taxation in consumers income

vii. Favorable change in taste/preference/fashion

12. Insurance compensation

Compensation= ValueofPolicy xLoss
 Valueofproperty

400,000x3, 000, 000

5000 000
= 2,400,000

13. Trade malpractices that consumers need protection against

i) False advertisement
ii) Overpricing
iii) False
measurements
iv) Misleading advert
v) Poor hygienic
standards
vi) Unhealthy
structures
vii) Hoarding
viii) Breach of contract

14.Advantages of private warehouses

a) Eliminates the cost of hiring storage space
b) The owner is tied to the procedures of receiving and releasing goods
c) The owner exercises full control over the warehouse hence he/she can make major decisions
without having to consult anybody
d) The owner may design the warehouse to suit his/her specification
e) The owner can purchase special facilities to handle special goods
f) Gives the owner time to look for market
g) Enable the business to maintain continuous supply of goods
The warehouse can be conveniently located

15.advantages of radio
a) It has a wider coverage therefore the advertisement can reach many potential customers
b) It conveys the advertisement to many people at the same time
c) The advertisement reaches both the literate and the illiterate
d) Different radio stations are able to broadcast in different languages hence the advertising
message can reach those who don’t understand Kiswahili and English
e) Radio advertisement is appealing to many people since the message can be accompanied by
music
f) The advertisement can be repeated over and over again according to the needs of the advertiser
g) The advertisement reaches the audience in the intended time
The advertisement may be targeted to a specific audience

16. (a) How internal environment may influence a business positively (10mks)
  Committed owners. Committed owners make informed decisions and do proper
resource allocation which leads to business success.
 Skilled personnel.Adequate skilled personnel who are correctly matched with
job activities make a business to do better.
 Adequate physical resources. An organization with adequate physical
resources does better. (e.g. enough buildings)
 Adequate financial resources. Adequate finances , properly allocated and
managed leads to business success
 Inventions and innovations
 Good Business structure. E.g. clearly defined duties and responsibilities reduce
conflicts in an organization leading to Business success.
 Good Business culture. A good business culture like the one that involves
employees in decision making ,motivates them hence leading to business
success

(b) Ways in which entrepreneurs can maintain a healthy Business environment. (10mks)
 By ensuring there is no pollution (air, light, sound, water and solid waste
pollution.)
 By maintaining a healthy competition through competing fairy e.g not
destroying the competitor’s promotional materials.
 By avoiding environmental degradation.
 By taking care of employee’s welfare. E.g paying them timely
 By maintaining security in the organization e.g. buildings and machines should
be maintained properly to avoid accidents.
 By ensuring there is adequate resources.
 By maintaining good interpersonal relationship with the public / corporate
social responsibility.
 By providing quality goods and services to their customers.
 By complying with the government policies

17. (a)A team of sales persons have just arrived at Milele Secondary School to promote the
text books of a given publisher. Explain five steps that they will follow when conducting
product promotion (10mks)
I. Establishing the customers contact, as well as choosing an appropriate time to
meet the customer to be. That is the time when the customer may be receptive
II. Arousing the consumers interest in the product by attracting his/her attention
through approach and languages, as well as making the prospective customer
develop interest in the product
III. Dealing with the objections on the product which may have been brought
about by the customer to be
IV. Closing the sale by inquiring whether the prospective customer will be
interested in the product or not. This should be done in a polite manner
 V. Offering after sale service to the customer on the product that has been sold

(b) Differentiate between oligopoly market structure and monopoly. (10 marks)

Oligopoly market structure Monopoly market structure

(a) Few large films that produce similar/close One single producer of a product with
substitutes that are highly differentiated. no close substitutes.
(b) Firms engage in none price competition The firm is the same as industry and
doesn’t engage in any competition.
(c) Firms are engaged in collusions/ form The firm is the price setter since its
cartels to fix the price of their product. only one in the market.
(d) Firms usually engage in price wars in order The firm usually engages in huge
to remain in the market. promotional activities in order to
continue dominating the market and
keep away potential competitors.
(e) There may be price leadership where the The firm is the price setter as there is
dorminant firm dictates the market no other firms in the industry.
price/rules in the market.