EXAM-STYLE QUESTIONS – Paper 1

Gowri plans to start up her own business using her own savings. She wants to produce
fashion clothes for women. She is a very good clothes designer but does not like stitching
clothes together. Two friends have offered to help Gowri. Abha is an experienced material
cutter – she can cut lengths of material for clothes with very little wastage. Aditi is quick at
sewing.
1(a) What is meant by ‘business’? [2]
Business is combining factors of production to make products, either goods or services,
which satisfy people’s wants. A business can be small, just one person, or large, employing
many people across many countries.
1(b) Identify two factors of production that Gowri will need for her new business. [2]
Labour is one the first factor of production Gowri will need, meaning the number of people
available to make her clothes. Capital is another factor of production Gowri requires,
meaning all the business finance, machinery and equipment needed for the manufacture of
her clothes.
1(c) Identify and explain two possible opportunity costs that Gowri may have from her
decision to start her own business. [4]
Gowri will have to choose between stitching her designs herself or using Aditi to increase her
business efficiency, so Aditi becomes the first opportunity cost. This means that Gowri’s
sewing her clothes herself is the next best alternative to employing Aditi as the sewer.
Similarly, Gowri has to make a decision between employing just her 2 friends (Abha & Aditi)
and employing even more people, so the extra employees become an opportunity cost. Gowri
could continue operating without the extra employees as the next best alternative to extra
labour in her operation.
1(d) Identify and explain one advantage and one disadvantage to Gowri’s business of using
division of labour in making clothes. [6]
One advantage of using division of labour in making Gowri’s clothes would be specialization
to increase efficiency. Abha’s expertise at cutting out the clothes and Aditi’s speed at sewing
would mean increased output for Gowri’s business to make more profit.
One disadvantage, however, would be decreased efficiency if Abha or Aditi got ill and their
expertise was unable to be used. If Gowri had to cut out and sew her clothes all on her own,
her output would be far less than it had been and her business would be less profitable.
1(e) Do you think that Gowri’s business will be able to sell all of the clothes that it makes?
Justify your answer. [6]
Gowri will only be able to sell all her clothes if she offers customers a made-to-measure
service, thereby ensuring that every order results in a sale. This would not give her a sale
stock, however, for customers to look through and try on so Gowri risks not making larger
profits through a lack of volume.
Gowri may not be able to sell all of the clothes she makes if she makes the price of each
garment too high. If she made stock in volume, to give customers a variety and opportunity to
buy more than one item, pricing items too highly could result in selling none of her clothes at
all.
The trouble with Gowri’s fashion business is the market is already saturated with competitors
for custom. Unless Gowri has a unique selling point (USP) for her clothes, then, the
likelihood of her business surviving could be quite slim. Other retailers will have lower prices
due to surplus stock, whereas Gowri may struggle to produce sufficient stock to make her
prices competitive and her business may fail.