Sample Quizzes For Preparation: External Influences On Business Activity

A2 Level Business – Chapter 6.1 External Influences on Business Activity Quiz

Question 1: What is a key benefit of privatisation?

A. Reduced efficiency due to public control
B. Greater government funding
C. Increased efficiency through competition
D. Loss of foreign investment

Question 2: What is a common criticism of nationalisation?

A. Services are too profit-driven
B. It increases innovation
C. It reduces accountability
D. It may lead to inefficiency

Question 3: Which of the following is an example of government using law to control marketing behaviour?

A. Reducing interest rates
B. Banning misleading advertisements
C. Allowing monopolies to merge freely
D. Reducing income tax

Question 4: How can legal changes affect business location decisions?

A. Encourage imports
B. Determine wage levels
C. Restrict operating areas through zoning laws
D. Increase labour turnover

Question 5: What is a disadvantage of privatisation?

A. Government gains profit
B. Consumers are taxed more
C. Reduced product quality due to profit motive
D. Improved public control

Question 6: Which is a method by which governments support businesses?

A. Increasing import tariffs
B. Providing subsidies and grants
C. Raising corporate tax
D. Restricting exports

Question 7: Which policy is part of fiscal policy?

A. Changing interest rates
B. Adjusting exchange rates
C. Changing government spending levels
D. Modifying supply-side incentives

Question 8: What is the main goal of supply-side policy?

A. Control inflation
B. Encourage imports
C. Increase productivity and efficiency
D. Fix exchange rates

Question 9: A contractionary fiscal policy would involve:

A. Reducing interest rates
B. Cutting taxes
C. Increasing government spending
D. Increasing taxes and reducing spending

Question 10: What is the purpose of competition law?

A. To limit exports
B. To encourage monopolies
C. To promote fair business practices
D. To reduce consumer choice

Question 11: What is meant by market failure?

A. All businesses go bankrupt
B. Markets allocate resources efficiently
C. Markets fail to produce socially desirable outcomes
D. Trade agreements collapse

Question 12: Which macroeconomic objective aims to prevent rapid increase in prices?

A. Economic growth
B. Low unemployment
C. Balance of payments
D. Low inflation

Question 13: What is a direct effect of high interest rates on businesses?

A. Encourages investment
B. Reduces cost of borrowing
C. Reduces consumer spending
D. Increases demand

Question 14: A business may benefit from exchange rate depreciation because:

A. Its imports become cheaper
B. It pays less tax
C. Its exports become more competitive
D. It receives more government grants

Question 15: What is a danger of ignoring CSR concerns?

A. Increase in operational efficiency
B. Greater investor trust
C. Loss of customer trust and brand damage
D. Increased tax breaks

Question 16: What role do pressure groups play in influencing business?

A. Reduce production costs
B. Reduce marketing effectiveness
C. Encourage unethical practices
D. Push businesses toward ethical behavior

Question 17: What is social auditing?

A. Financial review of social media activity
B. Evaluating social impact and ethical practices
C. Tax audit by government
D. Review of supply chain costs

Question 18: An ageing population is an example of:

A. Political change
B. Technological change
C. Demographic change
D. Legal change

Question 19: What is one risk of automation in business?

A. Slower production
B. Increased labour costs
C. Job losses for workers
D. Greater need for supervision

Question 20: Which of the following is a potential benefit of e-commerce for businesses?

A. Lower shipping costs
B. Reduced market access
C. Limited customer reach
D. 24/7 availability and wider market reach

Question 21: A strong supplier bargaining position can result in:

A. Higher input costs
B. Reduced competition
C. Faster production
D. Greater profit margins for the buyer

Question 22: A highly competitive market environment forces businesses to:

A. Decrease product quality
B. Increase inefficiency
C. Innovate and reduce costs
D. Limit marketing

Question 23: What is a benefit of free trade agreements?

A. Trade restrictions increase
B. Tariffs are removed or reduced
C. Currency exchange becomes fixed
D. Imports become illegal

Question 24: How does international trade benefit businesses?

A. Reduces production costs for local rivals
B. Increases access to larger markets
C. Makes local goods less attractive
D. Limits foreign investment

Question 25: One disadvantage multinationals may bring to host countries is:

A. Technology transfer
B. Job creation
C. Environmental degradation
D. Increased tax revenue

Question 26: Why might governments offer tax breaks to multinationals?

A. To discourage foreign investment
B. To boost national exports
C. To attract capital, jobs, and expertise
D. To reduce inflation

Question 27: A firm performing an environmental audit is likely trying to:

A. Hide poor practices
B. Evaluate its ecological footprint and improve sustainability
C. Comply with legal tax policy
D. Increase emissions

Question 28: Which of the following is an example of government dealing with a negative externality?

A. Providing subsidies
B. Reducing taxes
C. Imposing pollution fines
D. Printing more money

Question 29: A business facing a change in minimum wage law is affected by which factor?

A. Technological
B. Economic
C. Legal
D. Social

Question 30: Sustainability efforts in business aim to:

A. Maximise short-term profits at all costs
B. Ignore ecological impact
C. Balance profit with long-term environmental health
D. Avoid customer feedback

Answer Key and Detailed Explanations – Chapter 6.1 External Influences on Business Activity Quiz

1. C. Increased efficiency through competition
→ Privatisation can lead to improved efficiency as private firms compete to reduce costs and increase output.

2. D. It may lead to inefficiency
→ Nationalised firms often lack profit incentives, leading to reduced efficiency and innovation.

3. B. Banning misleading advertisements
→ Governments regulate marketing to protect consumers from deceptive or unethical practices.

4. C. Restrict operating areas through zoning laws
→ Zoning laws can limit where businesses may operate, affecting expansion or location strategy.

5. C. Reduced product quality due to profit motive
→ Privatised firms may cut corners to increase profit, impacting service or product quality.

6. B. Providing subsidies and grants
→ Governments help businesses through direct financial support like subsidies and grants.

7. C. Changing government spending levels
→ Fiscal policy includes taxation and government spending to influence the economy.

8. C. Increase productivity and efficiency
→ Supply-side policies aim to make the economy more productive and competitive.

9. D. Increasing taxes and reducing spending
→ Contractionary fiscal policy reduces inflation and debt by decreasing demand.

10. C. To promote fair business practices
→ Competition laws ensure that no firm dominates unfairly, protecting consumers and markets.

11. C. Markets fail to produce socially desirable outcomes
→ Market failure refers to inefficiencies that require government correction (e.g. pollution).

12. D. Low inflation
→ One of the key macroeconomic goals is to maintain stable prices.

13. C. Reduces consumer spending
→ High interest rates discourage borrowing and reduce spending power.

14. C. Its exports become more competitive
→ A depreciated currency makes exports cheaper in foreign markets.

15. C. Loss of customer trust and brand damage
→ Ignoring CSR can backfire by alienating consumers and damaging brand image.

16. D. Push businesses toward ethical behavior
→ Pressure groups lobby for social and environmental responsibility in business practices.

17. B. Evaluating social impact and ethical practices
→ Social audits assess a business’s effect on society beyond financial measures.

18. C. Demographic change
→ An ageing population affects workforce, demand, and healthcare industries.

19. C. Job losses for workers
→ Automation can replace manual jobs, creating social and economic consequences.

20. D. 24/7 availability and wider market reach
→ E-commerce enables global access, anytime availability, and cost reduction.

21. A. Higher input costs
→ Powerful suppliers can raise prices, squeezing business profit margins.

22. C. Innovate and reduce costs
→ Competition drives firms to improve efficiency and product offerings.

23. B. Tariffs are removed or reduced
→ Trade agreements aim to reduce barriers, encouraging cross-border commerce.

24. B. Increases access to larger markets
→ Global trade enables firms to reach more customers and spread risk.

25. C. Environmental degradation
→ MNCs may exploit lax environmental laws in host countries, causing harm.

26. C. To attract capital, jobs, and expertise
→ Incentives lure MNCs to boost employment and transfer knowledge.

27. B. Evaluate its ecological footprint and improve sustainability
→ Environmental audits help identify areas of ecological impact and improvement.

28. C. Imposing pollution fines
→ A classic method of correcting market failure from negative externalities.

29. C. Legal
→ Wage laws are a legal control imposed by the government.

30. C. Balance profit with long-term environmental health
→ Sustainability considers both business success and ecological responsibility.