2025 AQA IAS-Level Business (9625) Practice Paper with Answers

To calculate the Price Elasticity of Demand (PED):

1. Calculate the percentage change in quantity demanded:
\(\text{Percentage change in quantity demanded} = \frac{1,140 - 1,200}{1,200} \times 100 = -5\%\)

2. Calculate the percentage change in price:
\(\text{Percentage change in price} = \frac{5,500 - 5,000}{5,000} \times 100 = 10\%\)

3. Calculate PED:
\(\text{PED} = \frac{\text{Percentage change in quantity demanded}}{\text{Percentage change in price}} = \frac{-5\%}{10\%} = -0.5\)

Award 1 mark for the correct answer (A).

- Correct option: A (-0.5)
- Distractors: B (-2.0) is the reciprocal; C (-0.05) is an incorrect decimal shift; D (-1.0) assumes unitary elasticity.

To calculate the capacity utilisation:

\(\text{Capacity Utilisation} = \left( \frac{\text{Actual Output}}{\text{Maximum Capacity}} \right) \times 100\)

\(\text{Capacity Utilisation} = \left( \frac{68,000}{80,000} \right) \times 100 = 85.0\%\)

Award 1 mark for the correct answer (B).

- Correct option: B (85.0%)
- Distractors: A (117.6%) is maximum capacity divided by actual output; C (12.0%) is the difference divided by actual output; D (15.0%) is the spare capacity percentage.

To calculate the labour turnover rate:

1. Calculate the average number of staff employed during the year:
\(\text{Average staff} = \frac{\text{Start staff} + \text{End staff}}{2} = \frac{180 + 220}{2} = 200\)

2. Calculate the labour turnover rate:
\(\text{Labour turnover rate} = \left( \frac{\text{Number of staff leaving}}{\text{Average number of staff}} \right) \times 100\)

\(\text{Labour turnover rate} = \left( \frac{30}{200} \right) \times 100 = 15.0\%\)

Award 1 mark for the correct answer (C).

- Correct option: C (15.0%)
- Distractors: A (16.7%) uses the start-of-year staff count (180); B (13.6%) uses the end-of-year staff count (220); D (7.5%) is a calculation error division.

To calculate capacity utilisation, use the formula:

\(\text{Capacity Utilisation} = \frac{\text{Actual Output}}{\text{Maximum Capacity}} \times 100\)

Substitute the given values into the formula:

\(\text{Capacity Utilisation} = \frac{9,750}{12,500} \times 100 = 78\%\)

Therefore, the capacity utilisation in October is 78%.

1 mark for showing correct working or formula (e.g. \(\frac{9,750}{12,500} \times 100\)) but with an arithmetic error.
1 mark for the correct answer: 78% (accept 78).

To calculate the capacity utilisation for November:

Step 1: Calculate the revised maximum capacity for November after the 15% reduction.
\(\text{Revised Capacity} = 120,000 \times (1 - 0.15) = 102,000\) units.

Step 2: Use the capacity utilisation formula:
\(\text{Capacity Utilisation} = \frac{\text{Actual Output}}{\text{Maximum Capacity}} \times 100\)

\(\text{Capacity Utilisation} = \frac{81,600}{102,000} \times 100 = 80\%\).

Marks are awarded as follows:
- **1 mark** for calculating the correct revised maximum capacity of 102,000 units (or showing the correct method: \(120,000 \times 0.85\)).
- **1 mark** for stating/using the correct formula with their figures: \(\frac{81,600}{\text{Revised Capacity}} \times 100\).
- **1 mark** for the correct final answer of **80%** (also accept **80** or **0.8**).

*Note: An incorrect calculation of revised capacity but correct application of the capacity utilisation formula can earn a maximum of 2 marks (Own Figure Rule).*

To calculate the capacity utilisation for November:

Step 1: Calculate the revised maximum capacity for November after the 15% reduction.
\(\text{Revised Capacity} = 120,000 \times (1 - 0.15) = 102,000\) units.

Step 2: Use the capacity utilisation formula:
\(\text{Capacity Utilisation} = \frac{\text{Actual Output}}{\text{Maximum Capacity}} \times 100\)

\(\text{Capacity Utilisation} = \frac{81,600}{102,000} \times 100 = 80\%\).

Marks are awarded as follows:
- **1 mark** for calculating the correct revised maximum capacity of 102,000 units (or showing the correct method: \(120,000 \times 0.85\)).
- **1 mark** for stating/using the correct formula with their figures: \(\frac{81,600}{\text{Revised Capacity}} \times 100\).
- **1 mark** for the correct final answer of **80%** (also accept **80** or **0.8**).

*Note: An incorrect calculation of revised capacity but correct application of the capacity utilisation formula can earn a maximum of 2 marks (Own Figure Rule).*

Kaizen involves employees constantly identifying small, incremental changes to improve processes. This can significantly reduce waste and inefficiencies in production. By reducing waste, the unit cost of production is lowered, allowing the business to either lower its prices or achieve higher profit margins. Consequently, this cost advantage makes the business more competitive in the market compared to its rivals.

1 mark: Identifies/defines a feature of Kaizen or the direct operational effect (e.g. incremental changes leading to less waste/improved quality). 1 mark: Explains the link to a business benefit (e.g. lower unit costs, better efficiency, or higher quality products). 1 mark: Connects the benefit directly to improved market competitiveness (e.g. ability to offer lower prices, higher profit margins, or better value to customers).

Brand loyalty means customers repeatedly buy from the same brand rather than switching to competitors. This creates a more predictable and stable stream of future sales and cash flow. Loyal customers are also less sensitive to price increases (inelastic demand), which allows the firm to maintain higher profit margins. Ultimately, this reduces customer acquisition costs and provides a steady source of revenue that helps secure long-term financial stability.

1 mark: Demonstrates understanding of brand loyalty or its immediate effect (e.g. repeat purchases, reduced customer churn). 1 mark: Explains how this behavior affects sales revenue or price elasticity (e.g. stable demand, ability to charge premium prices). 1 mark: Links this effect directly to long-term financial security (e.g. lower marketing costs over time, sustainable cash flow, or reliable profits).

Peer-to-peer (P2P) lending connects borrowers directly with individual lenders online, bypassing traditional financial intermediaries. For an entrepreneur starting a new business, this can be advantageous because P2P platforms often have more flexible lending criteria than banks. This means a startup with no established credit history or collateral is more likely to be approved for funding. As a result, the entrepreneur can secure the necessary capital quickly to launch the business when traditional banks would have rejected them.

1 mark: Identifies a key characteristic of peer-to-peer lending (e.g. online platform connecting individual lenders/borrowers, faster application process, more flexible criteria). 1 mark: Explains how this characteristic specifically benefits a new startup/entrepreneur (e.g. lack of strict collateral requirements, higher likelihood of approval for high-risk ventures). 1 mark: Completes the chain of analysis showing how this choice enables the business to launch or operate successfully (e.g. quick access to essential starting capital).

First, the transition to online-only distribution removes the benefit of physical footfall and attractive storefront displays in high-end shopping districts. To compensate, LuxeGlow must aggressively shift its promotional strategy toward digital channels. This involves allocating budget to social media marketing, targeted search engine advertising, and partnerships with beauty influencers. By directing promotional efforts to where target consumers spend their time online, the business can drive high volumes of traffic to its e-commerce website, which is essential for maintaining sales volumes. Second, the absence of physical boutiques impacts how LuxeGlow communicates its premium brand identity. Previously, consumers experienced the luxury through physical interaction, testing cosmetics, and receiving personal service. In response, LuxeGlow must adapt its promotional messaging to build online trust and preserve its premium image. This could include promoting virtual try-on technologies, sending high-quality free samples with orders, and focusing promotional campaigns on premium packaging and unboxing experiences to maintain high brand prestige.

Level 3 (7-9 marks): Detailed analysis of two distinct ways the distribution change affects the promotional strategy, with clear, logical chains of reasoning fully applied to the premium cosmetics context (LuxeGlow). Level 2 (4-6 marks): Some relevant analysis of one or two ways, but with incomplete chains of reasoning or limited context application (maximum 6 marks if only one way is analysed). Level 1 (1-3 marks): Descriptive points identifying promotional methods or online distribution features with little or no analysis or context.

First, switching to a Just-in-Case (JIC) system allows PedalForward to hold buffer stocks of critical components, such as bicycle gears and frames. This buffer acts as a safety cushion against international transport delays. Consequently, even if a supplier's shipment is late, production can continue uninterrupted using the stored inventory, preventing idle staff costs and ensuring PedalForward meets its delivery commitments to retailers. Second, a JIC system involves ordering parts in much larger quantities. This enables PedalForward to negotiate bulk-buying discounts with global suppliers, achieving purchasing economies of scale. These lower unit costs can help offset the increased holding costs (such as warehousing and insurance) associated with JIC, potentially lowering the overall average cost per bicycle and increasing the firm's profit margins.

Level 3 (7-9 marks): Detailed analysis of two benefits of switching to JIC, with logical chains of reasoning applied clearly to the bicycle manufacturing context (PedalForward). Level 2 (4-6 marks): Relevant analysis of one or two benefits, but with some gaps in reasoning or limited application to the context (maximum 6 marks if only one benefit is analysed). Level 1 (1-3 marks): Descriptive points outlining features of JIC or general inventory management with little or no analysis.

First, a rise in real household incomes might lead to negative brand-switching. Budget airline travel is often viewed as a relatively inferior service compared to premium, full-service carriers. As incomes rise, consumers have more discretionary income and may choose to pay extra for premium benefits like extra legroom, included baggage, and superior in-flight service. This shift could reduce demand for FlySwift's standard tickets, forcing them to discount prices and harming profit margins. Second, the rise in real incomes is likely to expand the total market size for leisure travel. Consumers with more disposable income tend to take more frequent holidays and short weekend breaks. Even if some travellers trade up to premium airlines, the overall growth in tourist numbers can still increase FlySwift's absolute passenger volume, allowing them to fill more seats per flight and raise total revenue and profit.

Level 3 (7-9 marks): Detailed analysis of two ways the rise in real household incomes affects FlySwift, using clear economic reasoning (such as income elasticity of demand concepts) applied well to the budget airline industry. Level 2 (4-6 marks): Some relevant analysis of one or two effects, but with limited context or incomplete chains of reasoning (maximum 6 marks if only one way is analysed). Level 1 (1-3 marks): Simple descriptive statements about economic growth, household income, or airlines without developed analytical links.

Arguments for exclusive online (D2C) sales:

1. Profit Margins: Velasco can bypass traditional retail intermediaries (jewellers/department stores), capturing the full retail margin instead of splitting it. This can significantly increase the gross profit margin per watch.

2. Brand Control and Customer Data: The firm will have complete control over how the brand is presented, prices are maintained (no retail discounting), and will gain direct access to customer data, enabling more personalized future marketing campaigns.

Arguments against:

1. Loss of Tactile/Physical Experience: High-end luxury watches are highly emotional, expensive purchases. Customers typically expect to try on the watch, feel its weight, and appreciate the craftsmanship in person before spending significant sums.

2. Customer Relationship Management: Premium watch sales rely heavily on high-touch, elite in-store service. Replicating this experience online is extremely difficult and may dilute the brand's exclusivity and prestige.

Evaluation and Judgment:

While the financial appeal of capturing full retail margins is strong, complete physical absence is highly risky for a luxury brand. The optimal strategy is likely not exclusive D2C online, but a hybrid model where physical experiential showrooms or selected prestigious stockists support the online platform, ensuring the brand's luxury positioning is maintained.

Level 4 (10–12 marks): Candidates provide a balanced and well-focused assessment of the decision, showing a clear understanding of luxury brand dynamics and D2C economics. A fully justified conclusion is reached based on detailed and balanced analysis. Level 3 (7–9 marks): Good analysis of both online benefits (margins, brand control) and drawbacks (loss of sensory experience, service reduction). Some attempt at a conclusion. Level 2 (4–6 marks): Explains general advantages/disadvantages of online selling with limited application to the luxury context. Level 1 (1–3 marks): Basic definition of e-commerce or distribution channels without clear analysis.

Arguments for JIT transition:

1. Reduced Holding Costs: Electric bicycle components like lithium-ion batteries and advanced electric motors are highly expensive. Reducing stock levels frees up significant working capital and improves cash flow.

2. Reduced Obsolescence Risk: Technology in the EV market changes rapidly. Minimizing stock ensures Apex is not left with obsolete electrical parts.

Arguments against JIT transition:

1. Customization Bottlenecks: Since Apex specializes in custom bicycles, customer orders will vary. JIT relies on highly predictable and ultra-reliable supply chains. A delay in a single customized component (e.g., a specific frame color or specialized handlebar) will halt the entire production line.

2. Loss of Bulk Discounts: Apex may lose economies of scale on standard parts by ordering in smaller, more frequent batches.

Evaluation and Judgment:

JIT is highly beneficial for high-volume, standardized manufacturing, but presents severe operational risks for a custom manufacturer. Since Apex's core competitiveness relies on speed of customization and quality, a full JIT system is likely not the best approach. Instead, a hybrid model of holding safety stock for standard parts while using JIT principles solely for expensive, highly-customized components would balance cost and flexibility better.

Level 4 (10–12 marks): Excellent evaluation of JIT within a custom manufacturing context. Weighs the reduction of inventory holding costs for expensive tech parts against the massive risk of production stoppages. Provides a clear, well-supported judgment. Level 3 (7–9 marks): Balanced analysis of JIT benefits (cash flow, waste reduction) and drawbacks (supply chain vulnerability, loss of customization flexibility). Good application to electric bicycles. Level 2 (4–6 marks): Explains JIT advantages and disadvantages in a generic manufacturing context. Level 1 (1–3 marks): Identifies basic elements of JIT with no analysis.

Arguments that rising interest rates are the greatest threat:

1. Decline in Discretionary Spending: Premium organic coffee is an income-elastic luxury. As interest rates rise, consumer mortgage repayments increase, reducing discretionary income. Consumers may trade down to instant coffee or cheaper non-organic alternatives, directly reducing GreenBites' sales revenue.

2. Higher Cost of Debt: If GreenBites has variable-rate loans used to fund its chain expansion, interest expenses will rise immediately, reducing net profit margins.

Arguments that other external factors are greater threats:

1. Cost-Push Inflation: Rapid increases in the price of organic coffee beans, milk, energy, and minimum wage increases represent a more immediate threat to the gross profit margin. These operating costs must be paid regardless of consumer demand.

2. Intense Competitive Rivalry: Well-funded national coffee chains with massive economies of scale can absorb cost increases or lower prices to win market share, threatening GreenBites' survival.

Evaluation and Judgment:

Interest rates are a major macroeconomic threat, but their impact depends on the brand loyalty and demographic of GreenBites' target market (affluent consumers may be less sensitive to minor rate changes). Cost-push inflation of key ingredients and wages poses a far more direct, day-to-day threat to GreenBites' survival, as they directly squeeze operating profit margins and are harder to avoid.

Level 4 (10–12 marks): Candidates provide a well-structured, balanced comparison of the threat of rising interest rates against other external forces (such as inflation and competition) specifically for a premium niche consumer brand. A fully justified conclusion is reached. Level 3 (7–9 marks): Good analysis of how interest rates affect both borrowing costs and consumer demand, with some comparison to other threats. Applied well to GreenBites. Level 2 (4–6 marks): Explains the general effects of interest rates on business with weak application to the premium coffee market. Level 1 (1–3 marks): Simple definitions of interest rates or profitability.