A Level Business (A2) chapter 1: Business and its environment MCQs with answers
By Team Megalecture · Updated 4 Nov 2026
49 exam-style questions on Business and its environment, each with the answer and a short explanation. Ten of them are below to try. The chapter test draws ten fresh questions each time and is marked the moment you finish, with your score by topic.
External influences on business activity28 questions
Business strategy21 questions
Ten Business and its environment questions with answers
Try each one, then open the answer. These ten stay the same; the test draws new ones every time.
1. What is an environmental audit?
A
a review of a business's environmental impact against its targets and regulations
B
a check that a business's accounts give a true and fair view of its profit for the year
C
a measure of the number of customers who buy a business's products each month
D
a survey of what employees think about their working conditions and pay
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Answer: A. An environmental audit assesses the impact of a business on the environment, for example waste, emissions and energy use, against targets or legal standards.
2. More consumers now prefer products from sustainable sources. Which decision by a coffee retailer is the clearest response to this trend?
A
cutting prices for all drinks by 10% for a month to raise the number of customers
B
opening extra shops in the city centre to reach a larger number of customers
C
buying beans from certified sustainable farms and promoting this in its marketing
D
extending its opening hours in the evenings to increase sales of coffee
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Answer: C. The retailer responds to the shift in preferences by changing its sourcing and marketing. The other options are pricing and location decisions that do not address sustainability.
3. In a country the population is 100 million and 32% are under 15. Twenty years later the population is 140 million and 24% are under 15. A school-supplies company says that demand from children must have fallen. Which is a correct comment?
A
the number of children has risen from 32 million to 33.6 million, so demand from children has not fallen
B
the number of children has fallen from 32 million to 24 million, so demand from children has fallen
C
the number of children has fallen from 32 million to 26.6 million, so demand from children has fallen
D
the number of children is unchanged, because the fall in the proportion offsets the rise in total population
Show answer
Answer: A. 24% × 140 million = 33.6 million, up from 32 million. A falling percentage does not mean a falling number when the total population grows strongly.
4. Which is the main purpose of strategic management analysis?
A
to check that individual workers have met their production targets for the day and the week
B
to prepare the firm's financial statements for shareholders at the end of the year
C
to gather information about the firm and its environment to support strategic choice
D
to make sure that the firm's products can be delivered to customers on time
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Answer: C. Strategic analysis examines the internal and external environment to support the choice of a strategy. Monitoring daily targets is operational control.
5. Inflation rises unexpectedly. A firm has signed a three-year contract to supply goods to a customer at a fixed price. What is the most likely effect on this contract?
A
the firm's revenue rises in line with inflation while its costs stay constant over the contract
B
its costs rise but its revenue from the contract does not, so margins are squeezed
C
the firm's profit margin is unchanged because both its revenue and its costs are fixed
D
the firm gains because the real value of its fixed price has risen
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Answer: B. With a fixed selling price, rising input and wage costs reduce profit per unit. The real value of the fixed price falls, not rises.
6. A firm may launch a new product at a cost of $100,000. There is a 60% chance of success, giving a profit of $500,000 (before deducting the cost of launching), and a 40% chance of failure, giving a loss of $200,000 (before deducting the cost of launching). What is the expected monetary value of launching?
A
$220,000
B
$300,000
C
$120,000
D
$400,000
Show answer
Answer: C. EMV = (0.6 × 500,000) + (0.4 × −200,000) − 100,000 = 300,000 − 80,000 − 100,000 = $120,000. $220,000 forgets to subtract the cost and $300,000 ignores the failure outcome.
7. Which is a possible disadvantage to a firm of rapid technological change?
A
its unit costs must always rise whenever new technology is introduced to its production
B
it will always have to make some of its employees redundant when technology changes
C
its products will always lose value once they are launched onto the market
D
equipment can become out of date quickly, so the firm must keep investing
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Answer: D. Fast technological change shortens the useful life of equipment and forces regular investment. The other statements use 'always' or 'must' and are not generally true.
8. A country replaces a ten-year tax holiday for foreign investors with the standard 25% corporate tax rate. A multinational was about to build a plant there. What is the most reasonable effect of the change on the multinational's decision?
A
the government becomes responsible for covering any losses that the new plant may make
B
the plant's fixed costs of construction fall because tax rates are now clearer
C
the plant's expected after-tax return falls, so the investment may be delayed
D
the tax change applies only to domestic firms, so the multinational's decision is unaffected
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Answer: C. A higher tax rate lowers expected profit after tax, which changes the investment appraisal. It does not remove the decision, transfer risk to the government or reduce building costs.
9. A government nationalises a privately owned steel producer that was failing. Which is the most likely disadvantage of this decision?
A
managers may have less incentive to control costs because taxpayers can cover losses
B
employment becomes less secure because the firm must now make a profit every year
C
the firm can no longer be used to achieve wider social objectives such as regional jobs
D
the firm is likely to face stronger pressure from private shareholders to raise dividends
Show answer
Answer: A. A state-owned firm can often rely on government funds if it makes losses, which weakens the pressure to be efficient. Social objectives and job protection are potential advantages of nationalisation, and there are no private shareholders.
10. A firm has completed a SWOT and PEST analysis and is now deciding whether to enter a new market or to develop a new product. Which stage of strategic management is it at?
A
strategic analysis
B
strategic implementation
C
strategic choice
D
operational control
Show answer
Answer: C. Analysis gathers information about the environment and the firm. Choosing between options is strategic choice and putting the chosen option into action is implementation.
Business and its environment: questions students ask
How many Business and its environment MCQs are there?
49, each with the answer and a short explanation, across 2 topics: External influences on business activity, Business strategy. Every chapter test draws ten of them, so you can take it many times.
Is the A Level Business (A2) chapter 1 test free?
Yes. The test, the answers and the explanations are free and need no sign-up. Sign in only if you want your scores kept across devices.
How is the chapter test marked?
The moment you press Finish: your score, the right answer and an explanation for every question, and the ones you got wrong saved in My mistakes to retry.
