Paper 1

Name: Alex W.
Date: 3/1/2021
Marks: __/40
Duration: 1 hour 15 minutes
a. Define the term ‘opportunity cost’ [2]

Opportunity cost, by definition, is the representation of loss of potential gain from
other alternatives by the selection of one option. In other words, it stands in
representation of the benefits of the next best alternative that was foregone.
b. Briefly explain how business decisions involve opportunity cost, using an appropriate
example. [3]
Businesses often have to choose between multiple decisions- analysing opportunity
cost allows them to select the best one by simultaneously considering the benefits of
every available option. After all, they have limited resources and have to allocate
them efficiently. The efficient allocation of resources is crucial to every business, for
it needs to fulfil various demands. An example of the consideration of opportunity
cost in business is the decision to invest in a specific piece of equipment or machinery-
through this, alternatives to the aforementioned equipment are forgone.
1. a. Define the term ‘buffer inventory’ [2]

A buffer inventory, by definition, is the minimum amount of inventory a business should
hold in order to make sure that production will still take place regardless of potential
delivery delays or the need to increase production rates. In other words, buffer
inventory is the extra stock of either raw materials or final products that a business
holds as protection against unforeseen circumstances.
b. Briefly explain two likely consequences for a business of poor inventory management. [3]
● If a business does not have enough inventories to fulfil consumers’
ever-changing demands, it will result in lost sales.
● Poor inventory management may lead to an excess of final products, therefore
forcing the business to reduce its goods’ prices.
2. Explain how viral marketing could be an important part of marketing for a business.
[5]
Viral marketing, by definition, is a method of marketing wherein social media platforms
are utilised to spread awareness regarding a business’s goods and/or services.
Through this, consumers are encouraged to share information about the business in
question through the internet. The idea of this concept is to “virally” spread it, almost
imitating an infection of sorts amongst internet users. Marketing through social media
platforms tends to be not only cost-efficient, but efficient as well, as it requires no
funds whilst being able to swiftly spread brand awareness throughout the entire
globe. Brand recognition is easily built through this method, as social networking sites
are able to connect billions of people worldwide. The ever-increasing popularity of
social media contributes to this, too. Added to that, viral marketing makes it more
convenient for new businesses to successfully promote and spread their brand with
little-to-no costs within a short period of time.
3. a. Define the term ‘share capital’. [2]

Share capital, by definition, is the total amount of funds (value) a business manages
to raise by issuing shares or from the capital that shareholders use to purchase
shares in a public limited company.
b. Briefly explain one advantage and one disadvantage of grants as a source of business
finance. [3]
A grant, by definition, is a sum of funds given to a business in order to help them
further their business. These are usually distributed by grant-giving agencies such as
corporations, foundations, governments, or trusts. An advantage to this would be
that poorer businesses or those unable to afford loans may benefit and therefore
expand their business. On the other hand, however, these funds may be used unwisely
when placed in the wrong hands or cause the business in question to become
overdependent on grants.
4. a. Analyse how the features of an international market may differ from the features of
a national market. [8]
In its simplest terms, a market is a system of institutions, procedures, and rules that
relate to the exchange of goods and services between individuals or organisations.
Markets can be defined in various ways, including by geography, customer, product, or
perhaps, the behavioural characteristics of its consumers.
An international market is defined geographically as a market located outside the

international borders of a business or company’s country of citizenship. The
conceptual opposite of an international market is known as a national market, which is
the geographic region within the national boundaries of a business or company’s home
country.
In terms of area size, international markets are much larger than national ones, as
they can span to any country. As the name suggests, national markets only operate in
one country, too, as compared to international markets than can operate in multiple
countries. In terms of government influence and/or interference, domestic marketing
involves less of it, whereas international marketing deals with more of it due to the
business in question having to deal with the different rules and regulations of
numerous countries.
In terms of technology, international marketing has an advantage wherein it has

access to the latest technology of several countries, which may be absent in many
domestic countries. However, various high risks and challenges are involved in the
case of international markets due to several factors such as socio-cultural
differences, exchange rates, having to set an international price for the good or
service (tax rates also have to be kept in consideration, as they vary according to
living standards and country conditions), and so on. Challenges and risk factors are
comparatively less when it comes to national markets. National markets require less
investment to acquire resources, too, whereas international markets require huge
capital investment.
In national markets, executives will face less problems as they deal with people of
similar nature. However, in the case of international markets, they will inevitably have
to deal with customers of different tastes, habits, preferences, segments
(international markets tend to be larger and more segmented), and so on. Cultural
differences have to be taken note of in international markets, e.g. the demand for
different products and use of language. In general, international markets involve more
uncertainty, too, as it is a completely different environment in many ways.
b. Discuss the advantages and disadvantages for a multi-product business of using product
life cycles to help make effective marketing decisions. [12]
A product life cycle (PLC), by definition, is the length of time a product is introduced
to consumers into the market until it ends up removed from the shelves. The product
life cycle of a product can be divided into four stages- introduction, growth, maturity,
and decline. This concept is often used by management and marketing professionals as
a tool for decision-making, in particular, decisions involving advertising, expanding
into new markets, redesigning products, and the reduction of prices. Through this
process, product sales from the beginning (launch) to an end (withdrawal) of a good
are taken note of and analysed. The PLC curve may therefore be effectively utilised
for the purposes of portfolio analysis- in other words, using various models and/or
matrices to help the business in question make decisions on its overall product offering
and business portfolios.
The use of a PLC to help make effective marketing decisions comes with many
advantages, such as that the PLC helps with planning. Marketing managers are able to
check which stage they are currently in, in terms of the PLC and make appropriate
changes to their marketing strategies. It also helps managers avoid the pitfalls of
different stages. By comparing their products to similar stages in their respective life
cycles, they are able to spot mistakes and trends before they occur, and may prepare
accordingly. In a similar way, businesses can launch new products smoothly and
prepare themselves for any unprecedented situation. As a whole, the business will be
able to produce a portfolio of products that is balanced, with multiple products at
various stages of the product life cycle.
However, disadvantages to the PLC do exist, such as that it is often difficult to

estimate the exact span of a product’s life cycle, therefore deeming the PLC as, more
often than not, inaccurate. Most markets in this day and age are dynamic, too,
disrupting this inaccuracy; the PLC is quite ineffective in ever-changing markets like
these. Added to that, the PLC is often too clean a picture- a product’s sales may
never rise beyond the introduction stage, or enter into a decline just before going
into a subsequent rise. Consequently, this may cause managers to be too rigid in their
strategies, for they expect the sales volumes of their products to follow a script
that is supposedly written in stone, when in truth, many products do not end up going
through a full PLC. Not to mention, a market’s external changes may quickly affect
the PLC and furtherly disrupt estimations, reducing its accuracy. Given that the
business in question is a multi-product one, this process might be expensive, costing
the business quite a sum.
To conclude, while a PLC has its advantages, its disadvantages may outweigh them and
disrupt its accuracy and efficiency. Utilising the PLC might not be the best approach
to influencing marketing decisions, and the business should consider alternative
options that allow for dynamism and adaptability.

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Name: Alex W.

a. Define the term ‘opportunity cost’ [2]

1. a. Define the term ‘buffer inventory’ [2]

3. a. Define the term ‘share capital’. [2]

An international market is defined geographically as a market located outside the

In terms of technology, international marketing has an advantage wherein it has

However, disadvantages to the PLC do exist, such as that it is often difficult to

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