International Advanced Level
Unit 3: Business behavior

SECTION A
Answer ALL questions in this section.
Questions must be answered with a cross in a box . If you change your mind about an answer,
put a line through the box and then mark your new answer with a cross .
1 Mara Phone is a new smartphone developed by the African conglomerate, Mara Group.
The business is aiming to grow its market share by maximising its sales.
Which one of the following conditions is necessary for Mara Group to maximise sales
volume of this new phone without making a loss?
A Marginal revenue equals marginal cost
B Average revenue equals average cost
C Marginal revenue equals zero
D Average revenue equals marginal revenue
(Total for Question 1 = 1 mark)
2 A Swedish company, Lantmännen, is an agricultural business owned by 25000
farming partners.
Which one of the following is the best description of this type of business?
A State-owned enterprise
B Joint venture
C Conglomerate
D Co-operative
(Total for Question 2 = 1 mark)
P65837A0328 Turn over
3
3 Which one of the following diagrams illustrates a firm’s average fixed cost curve?
Costs
0
A
Output
Costs
0
C
Output
Costs
0
B
Output
Costs
0
D
Output
A
B
C
D
(Total for Question 3 = 1 mark)
P65837A0428 4
4 Which one of the following will influence the elasticity of demand for labour?
A The size of the population
B The level of welfare benefits
C Labour costs as a percentage of total costs
D The rules determining the number of immigrants
(Total for Question 4 = 1 mark)
5 The table shows a firm’s total costs of producing textbooks.
Output Total costs ($)
0 14 000
1 000 15 000
2 000 16 000
3 000 17 000
4 000 18 000
5 000 19 000
What would be the average variable cost at an output of 4000 textbooks?
A $0.75
B $1.00
C $3.25
D $4.50
(Total for Question 5 = 1 mark)
P65837A0528 Turn over
5
6 A farm producing wheat is operating in a monopolistically competitive market.
Which one of the following will apply to this firm?
A Allocative inefficiency in the long-run
B Productive efficiency in the short-run
C Supernormal profit in the long-run
D Allocative efficiency in the short-run
(Total for Question 6 = 1 mark)
TOTAL FOR SECTION A = 6 MARKS
P65837A0628 6
SECTION B
Study Figures 1 and 2 and Extracts A and B in the Source Booklet before answering Question 7.
Write your answers in the space provided on the following pages.
7 In 2018 total new car sales in China were 23.7 million.
(a) With reference to Figure 2, calculate the 4-firm concentration ratio for the car
market in China in 2018. You are advised to show your working. (2)
(b) With reference to the third paragraph of Extract B, explain what is meant by
a ‘takeover’.
(4)
(c) With reference to Figure 1 and Extract A, analyse two reasons for the fall in car
sales in China since 2017.
(6)
(d) With reference to Extract A, examine the likely effects of the Chinese
Government’s subsidy on the profits of an electric car manufacturer.
Illustrate your answer with an appropriate diagram.
(8)
(e) With reference to Extract A and Extract B and your own knowledge, discuss
the types of non-price competition that could be used by car manufacturers to
increase the sales of cars.
(14)
P65837A0728 Turn over
7
7 In 2018 total new car sales in China were 23.7 million.
(a) With reference to Figure 2, calculate the 4-firm concentration ratio for the car
market in China in 2018. You are advised to show your working. (2)
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(b) With reference to the third paragraph of Extract B, explain what is meant by
a ‘takeover’.
(4)
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P65837A0828 8
(c) With reference to Figure 1 and Extract A, analyse two reasons for the fall in car
sales in China since 2017.
(6)
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(d) With reference to Extract A, examine the likely effects of the Chinese
Government’s subsidy on the profits of an electric car manufacturer.
Illustrate your answer with an appropriate diagram.
(8)
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P65837A01228 12
(e) With reference to Extract A and Extract B and your own knowledge, discuss
the types of non-price competition that could be used by car manufacturers to
increase the sales of cars.
(14)
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(Total for Question 7 = 34 marks)
TOTAL FOR SECTION B = 34 MARKS
P65837A01528 Turn over
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BLANK PAGE
SECTION C BEGINS ON THE NEXT PAGE.
P65837A01628 16
SECTION C
Answer TWO questions from this section.
8 In 2019 the Indian Government announced plans to privatise up to 25 airports across
India. These airports are not the largest in India, but they each have annual passenger
numbers between 1 million and 1.5 million.
Evaluate the possible benefits of privatisation for the consumer.
Illustrate your answer with an appropriate diagram(s).
(Total for Question 8 = 20 marks)
9 In the UK, for any given rail journey, there are usually more than five different ticket
prices depending on the time and day of travel.
Evaluate the view that price discrimination is always beneficial for producers.
Illustrate your answer with an appropriate diagram(s).
(Total for Question 9 = 20 marks)
10 In New Zealand, in 2018, it was estimated that the average worker employed in the
private sector earned 30% less than the average worker in the public sector.
Evaluate the reasons why wage differences exist.
Illustrate your answer with an appropriate diagram(s).
(Total for Question 10 = 20 marks)
P65837A01728 Turn over
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Write the answer to your FIRST chosen question here.
Indicate which question you are answering by marking a cross in the box . If you change your
mind, put a line through the box and then indicate your new question with a cross .
Write the answer to your SECOND chosen question on page 22.
Chosen question number: Question 8 Question 9 Question 10
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Indicate which question you are answering by marking a cross in the box . If you change your
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Chosen question number: Question 8 Question 9 Question 10
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TOTAL FOR SECTION C = 40 MARKS
TOTAL FOR PAPER = 80 MARKS
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©2021 Pearson Education Ltd.
1/1/1/1/1/1/1/
Source Booklet
Do not return this Booklet with the question paper.
Economics
International Advanced Level
Unit 3: Business behaviour
2 hours WEC13/01
Pearson Edexcel International Advanced Level
2
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Sources for use with Section B.
The Chinese car market
Figure 1 New car sales in China, 2009–2019 (millions)
Millions
Years
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
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10.3
13.8 14.5 15.2
17.9
19.7 21.2
24.4 24.7 23.7
21.4
Figure 2 Major car manufacturers’ sales in China, 2018 (millions)
Shanghai Volkswagen Automotive Co. 2.07
FAW-Volkswagen Automotive Co.
Shanghai General Motor Co.
SAIC-GM-WULING Automotive Co.
Geely International Corporation
Dongfeng Automotive Co.
Baoding Great Wall Motors
Changan Automotive Co.
Beijing Hyundai Motor Co.
Guangqi Honda Automotive Co.
2.04
1.97
1.66
1.50
1.29
0.92
0.87
0.81
0.74
Millions
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Extract A Developments in the Chinese car market
In 2019 more cars were sold in China than in any other country. In that year, the Chinese
car market accounted for 30% of total global car sales. Chinese manufacturers produced
42% of the cars sold in China in 2019. In 2018 23.7 million cars were sold in China,
compared to only 4.4 million in Japan, 15.6 million in Europe and 17.2 million in the
United States.
In 2018 car sales in China declined by 4%, the first reduction in 20 years. One reason for
this was the slowdown in China’s rate of economic growth. In 2009 real GDP rose by 9.4%,
but in 2018 the rate of growth had fallen to 6.6%.
The decline in sales is also because of the increased availability of substitutes. Chinese
car buyers are increasingly looking for low-cost alternatives to buying new cars. Many
consumers are switching from car ownership to using car-hailing taxi apps instead. There
are now over 100 different car-hailing platforms in China with over 330 million consumers.
The price of these services is very low and the app makes them very easy to order. China is
becoming the largest car-hailing taxi market in the world.
Growth in the electric and hybrid car market is promising, as younger consumers demand
more environmentally friendly transportation. The Chinese Government is heavily
subsidising electric cars, offering up to 90 000 yuan per car, in an attempt to encourage
more production. The aims of the subsidies are to reduce air pollution to meet carbon
performance targets and to improve the quality of electric cars. The Government is
also increasing the number of public charging points available for electric cars. Local
governments incentivise consumers to purchase electric cars by offering free licence
plates and free parking.
Extract B Competition in the Chinese car market
A connected-car is one that has its own internet connection. This allows the car to
share internet access and data with other devices inside and outside the car. The global
connected-car market is expected to grow by 270% by 2022. Market research by Kantar
TNS suggested 79% of the Chinese consumers planned to buy a connected-car in the
future.
In 2018 BMW, a leading German luxury car manufacturer, started a joint venture with
Alibaba Group, a Chinese multinational firm specialising in technology. Their aim was to
develop a range of luxury connected-cars. Drivers are able to shop online, watch movies,
listen to music and book appointments in their new BMW. Quality and innovation are
very important in the Chinese car market. Consumers are very influenced by reputation
and social media when choosing a car to purchase.
Chinese car manufacturer Geely is the main producer of connected-cars. Geely has
a 6.3% market share of the total Chinese car market. The business produces highly
connected-cars with ultra-modern design. The company targets its cars at younger
consumers. The company is trying to expand internationally and recently bought the
majority share in Lotus, a British sports car brand. The takeover should help Geely increase
its sales in Europe. However, its main objective is to grow its market share in China.
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Acknowledgements
Figure 1 adapted from https://wolfstreet.com/wp-content/uploads/2019/07/China-auto-sales-2019-
Est-2H.png
Figure 2 adapted from https://www.statista.com/statistics/277298/china-leading-passenger-carmanufacturers-by-number-of-cars-sold/
Extract A adapted from https://www.ft.com/content/ff5df696-addb-11e9-8030-530adfa879c2
https://www.bloomberg.com/news/articles/2019-10-12/historic-slump-in-china-car-marketcontinues-as-sales-drop-6-6
Extract B adapted from https://edition.cnn.com/2019/07/09/business/geely-china-car-sales/index.
html
https://daxueconsulting.com/automotive-industry-in-china-carmakers-compete-for-first-place/
https://www.bloomberg.com/news/articles/2019-09-30/alibaba-s-luxury-venture-with-richemontgoes-online-in-china