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Economics and Business Studies
A level quiz, 2010
Unit 1 Developing new business ideas
more resources on this course from geraldwood.com
How to revise
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Use your own notes as your basis for revision.
I have used a number of examples in this quiz that you would
not be expected to know about. The specification does not
require that you learn any specific examples.
Use this revision quiz if you want a change from your own
notes. It will test your knowledge of the basic ideas.
However, many of the questions contained here have more
than one correct answer
If you don’t understand any of the questions, use your own
notes, or textbooks, or teachers, or friends to improve your
understanding.
Don’t forget – knowledge of the concepts is only part of what
you are tested on. Application, Analysis and Evaluation are all
equally important. The comments given provide some
examples of how basic content might be extended.
1.3.1 Characteristics of successful
entrepreneurs
This section of Unit 1 looks at:
1. Have you got what it takes? The personal
qualities of successful entrepreneurs
2. Do you have the drive? What motivates people
to set up new businesses?
3. Can you lead? How will you achieve results
through others?
1.3.1(1) Characteristics of
entrepreneurs
Q1: Why does an entrepreneur need to possess
initiative?
A: There is no-one to tell the entrepreneur what to
do
Comment: Successful entrepreneurs need to
balance a willingness to use initiative with a
willingness to take advice. Even the most
talented entrepreneur will soon reach a position
where expert guidance on some matter (e.g. legal
advice) will make the business more successful
1.3.1(1) Characteristics of
entrepreneurs
Q2: Why does an entrepreneur need to possess
creativity?
A: Entrepreneurs will often be faced with new
situations, which will demand an imaginative
response
Comment: Creativity needs to be understood in
its widest sense. For example, someone with
business flair setting up a clothes shop could
employ someone with a flair for fashion to
choose the clothes (and vice versa)
1.3.1(1) Characteristics of
entrepreneurs
Q3: Why does an entrepreneur need to be hard
working?
A: Entrepreneurs will be competing against
established businesses. Entrepreneurs need to
make up for their need to win new customers by
working harder
Comment: Hard work and creativity go together
in business. A winning idea has to be followed
up by implementation – and implementing new
ideas is always hard work
1.3.1(1) Characteristics of
entrepreneurs
Q4: Why does an entrepreneur need to possess a
willingness to take calculated risks?
A: Setting up a business is statistically risky. Many
fail in their early years
Comment: One common trigger for setting up a
business is the experience of repeated
redundancy. Traditional employment carries its
risks too
1.3.1(1) Characteristics of
entrepreneurs
Q5: Why does an entrepreneur need to have selfconfidence?
A: Entrepreneurs take the leading role within their
business – inevitably this demands more selfbelief than working for someone else
Comment: While some are naturally more selfconfident than others, like any other
characteristic self-confidence can grow over
time. ‘Nothing succeeds like success’
1.3.1(1) Characteristics of
entrepreneurs
Q6: Why does an entrepreneur need to have
resilience?
A: Every new enterprise will meet setbacks. An
entrepreneur has to be able to keep going in the
face of such setbacks
Comment: Successful entrepreneurs often have a
streak of hardship somewhere in their
backgrounds. Setbacks in life may well lead to a
renewed determination to do well. The crucial
thing is how we respond to setbacks
1.3.1(2) What motivates
entrepreneurs?
Q7: What is the difference between working for a
wage and working for profit?
A: A wage is traditionally a more stable form of
income, paid in return for labour.
Comment: Setting up a business and working for
a profit is more risky, and normally involves an
up-front investment of financial capital (cash) –
which may be lost. On the other hand, the
potential rewards are greater too
1.3.1(2) What motivates
entrepreneurs?
Q8: Looking purely at the financial angle, why
might someone choose to set up a business for
profit rather than working for a wage?
A: They may have a belief (whether true or false)
that they will make more money that way
Comment: Alternatively, they may have
accumulated sufficient capital to be able to take
the risk, or traditional employment opportunities
may be limited, or they may be able to rely on a
spouse to provide an income from employment
1.3.1(2) What motivates
entrepreneurs?
Q9: Why might someone wish to work from
home?
A: This is a cheap and flexible arrangement. It
may enable the person to fulfil other
responsibilities, such as looking after children,
the sick or the elderly – or may be combined
with housework
Comment: Many large businesses started life in
someone’s kitchen, bedroom or garage – and of
course many will never outgrow their beginnings
1.3.1(2) What motivates
entrepreneurs?
Q10: Why might anyone wish to work
independently?
A: Some people are more productive working
independently and/or prefer the autonomy of
not reporting to a boss
Comment: While an independent turn of mind is
essential to any entrepreneur, no business
person will ultimately be successful if they
cannot also learn to co-operate with others
1.3.1(2) What motivates
entrepreneurs?
Q11. What ethical reasons might there be for
setting up a business?
A: Ethical beliefs are one source of the powerful
motivation that any entrepreneur needs
Comment: This may either be general (e.g. to
provide a better and/or cheaper service than
rivals), or specific (e.g. to set up a business
which is more environmentally friendly than
existing options)
1.3.1(3) Leadership styles
Q12: When might an autocratic style of leadership
work best?
A: Simply telling people what to do works well in
situations where it is important that everyone
does the same thing e.g. informing new
employees of company policy
Comment: While an autocratic style of leadership
is unfashionable the fact remains that it
underpins the way most businesses work most
of the time
1.3.1(3) Leadership styles
Q13: When might a democratic leadership style
work best?
A: A willingness to seek consensus before a
decision is made works well where participants
have specific expertise and their ‘buy-in’ is
important to the decision’s implementation
Comment: Decision-making cannot be entirely
abdicated to a group. Leaders are inevitably held
responsible for the decisions which they make –
or allow others to make
1.3.1(3) Leadership styles
Q14: Does a paternalistic leadership style have
anything to offer contemporary Britain?
A: A genuine and sensitive concern for an
employee’s welfare in its widest sense will always
be welcome
Comment: However, employees are not children
and an over-dependence on the boss is unlikely
to lead to the personal growth and development
on which an employee’s future productivity
depends
1.3.1(3) Leadership styles
Q15: What assumptions are made by
MacGregor’s Theory X?
A: That employees are looking for the most
money for the least effort, and will therefore
only respond to rewards and threats
Comment: While an unfashionable view, there is
an element of truth in this for everyone. For
example, secondary education has been largely
built on the premise that the prospect of exam
success or failure is a prime motivator
1.3.1(3) Leadership styles
Q16: What assumptions are made by MacGregor’s
Theory Y?
A: That employees seek meaning in their work,
and will find it through acting responsibly and
using their abilities to the full
Comment: One outcome that follows on from
this insight is that over-qualified people should
not be employed. If a job has little scope for
enlargement, then the over-qualified person may
soon become disaffected even if the pay is good
1.3.2 Identifying a business
opportunity
This section of Unit 1 looks at:
1. What determines the price of a product? How
does the willingness of companies to supply a
product affect both the size of a market and
the price at which a good will sell?
2. What affects the demand for a product? Why
should every company pay close attention to
the preferences of its customers?
1.3.2(1) What makes a market? What
should firms supply?
Q17: What does a demand curve show?
A: The amount of a product that ‘the market’ (i.e.
consumers) will buy (i.e. demand) over a range
of different prices. Its negative gradient reflects
the fact that the higher the price the less
consumers will buy.
Comment: The size of the market reflects the
distance over which the good or service can be
traded. So the market for plumbers is regional,
while the market for oil is world-wide
1.3.2(1) What makes a market? What
should firms supply?
Q18: What does a supply curve show?
A: The amount of a product that ‘the market’ (in
this case companies) will sell (i.e. supply) at a
range of different prices. Its positive gradient
reflects the fact that the higher the price the
more companies will wish to sell
Comment: The concept of a supply curve works
best with homogenous goods such as raw
materials and currencies, which can always be
sold at a known price
1.3.2(1) What makes a market? What
should firms supply?
Q19: How is the price of a good determined?
A: The price of any good will tend towards that
price at which the quantity demanded equals the
quantity supplied – what is known as the
‘equilibrium price’ (P*, for short)
Comment: The simplest supply / demand
diagram will also show the quantity both
demanded and supplied at P*. This is known as
the ‘equilibrium quantity’ (Q*, for short)
1.3.2(1) What makes a market? What
should firms supply?
Q20: How does knowledge of the equilibrium
price help a company identify a business
opportunity?
A: If a company thinks it can produce goods of
the same quality for a lower price, or of a higher
quality for the same price, then it has identified a
business opportunity
Comment: Companies may also look for ‘gaps in
the market’ i.e. products for which there is, at
present, no equilibrium price at all
1.3.2(1) What makes a market? What
should firms supply?
Q21: How can supply & demand curves, and P* & Q* be
illustrated on a single diagram?
S
D
E
P*
S
D
Q*
Quantity
Comment: Price is measured in some unit of currency
e.g. pounds sterling or euros. Quantity is measured in
units per time period e.g. if the product was oil, it might
be millions of barrels per month
3.4
1.3.2(1) What makes a market? What
should firms supply?
Q22: What are the factors of production (also
called inputs), which firms need to produce their
output?
A: Labour (L) and capital equipment (K)
Comment: ‘Labour’ refers to every worker with
the various skills which are needed. Sometimes
‘entrepreneurship’ is listed separately from other
types of labour. Equally, ‘land’ is sometimes
included with capital equipment and sometimes
listed separately
1.3.2(1) What makes a market? What
should firms supply?
Q23: What is the name for the amount of output
which can be produced from one unit of input?
A: The productivity of that input e.g. the
productivity of a worker in a call centre might be
measured as X calls answered per hour or Y
sales achieved per hour
Comment: It follows that the two ways to raise
output is either to use more inputs or raise the
productivity of those inputs
1.3.2(1) What makes a market? What
should firms supply?
Q24: What factors, other than the price of the
product, affect the willingness of firms to supply
the product [such factors are known as ‘nonprice determinants of supply’]?
A: The costs of production. These include the
price of labour (i.e. the wage rate), the price of
capital equipment, the productivity of those
inputs and any indirect taxes (such as VAT) paid
Comment: Lower input prices & taxes, and higher
productivity all lead to lower costs
1.3.2(1) What makes a market? What
should firms supply?
Q25: Illustrate the impact of lower costs on the
equilibrium price and quantity of any product
S1
S2
D
E1
P1
P2
E2
S1
S2
D
Q1 Q2
Quantity
Comment: This explains the current trends in the
market for high-technology goods. As advances in
technology reduce costs, so the supply shifts
outwards leading to rising sales and falling prices
3.7
1.3.2(2) Identifying what consumers
want or need
Q26: What factors, other than the price of the
product, affect the willingness of consumers to
buy the product [such factors are known as
‘non-price determinants of demand’]?
A: The incomes of consumers, the prices of any
substitute goods and any complementary goods
and personal tastes
Comment: We could add: the size & structure of
the population in the market, and the way
income is distributed between consumers