I85PREP
⌘ K
IB Business Management SL study materials
IB Business Management SL study resources

IB Business Management SL practice questions

One question at a time. Build your IB Business Management SL understanding.

First 50 of 200 questions. Each one lists the choices, the correct answer, and an explanation. The checker at the top of this page saves progress in this browser when it is available.

Continue in the practice tool above to load more questions, 50 at a time.

Question 1Business organisation and environment

A bakery converts flour, sugar and eggs into bread and cakes for sale. In business management terms, what are the flour, sugar and eggs called?

  1. Capital goods
  2. Finished goods
  3. Fixed assets
  4. Raw materials Correct answer.

Explanation

Inputs that are physically transformed by a production process into outputs are raw materials. They differ from capital goods, which are the machines and tools used to carry out the transformation rather than being consumed in it.

Question 2Business organisation and environment

Which statement best describes the primary sector of business activity?

  1. It involves providing intangible services to final consumers.
  2. It involves the retail distribution of goods to households.
  3. It involves manufacturing components that other firms assemble.
  4. It involves extracting natural resources directly from the earth or sea. Correct answer.

Explanation

The primary sector covers activities that extract or harvest natural resources, such as farming, mining, fishing and forestry. Manufacturing belongs to the secondary sector, while services and retailing belong to the tertiary sector.

Question 3Business organisation and environment

A country's output shifts over decades from agriculture to factories and then to banking and tourism. Which term best describes this pattern?

  1. Diseconomies of scale
  2. Structural change in the economy Correct answer.
  3. Division of labour
  4. Vertical integration

Explanation

Structural change refers to a long-term shift in the relative importance of the primary, secondary and tertiary sectors as an economy develops. Rising incomes typically increase demand for services faster than for basic goods, drawing resources into the tertiary sector.

Question 4Business organisation and environment

Which of the following is the clearest example of an opportunity cost for a sole trader?

  1. The depreciation recorded on the delivery van at year end
  2. The interest paid on a bank loan used to buy a delivery van
  3. The wages foregone by leaving a salaried job to start the business Correct answer.
  4. The sales revenue earned from the first year of trading

Explanation

Opportunity cost is the value of the next best alternative forgone when a choice is made. Giving up a salaried job to start a business sacrifices that income, which is the alternative use of the owner's time and effort.

Question 5Business organisation and environment

A firm's fixed costs are $40,000 and each unit contributes $20 towards covering those costs. What is the break-even level of output?

  1. 800 units
  2. 200 units
  3. 2,000 units Correct answer.
  4. 20,000 units

Explanation

Break-even output equals fixed costs divided by contribution per unit, so $40,000 divided by $20 gives 2,000 units. At that volume total contribution exactly covers fixed costs and profit is zero.

Question 6Business organisation and environment

Which statement is the best definition of a business objective?

  1. A measurable target that the business aims to achieve within a stated period Correct answer.
  2. A description of the products a business currently sells to its customers
  3. A statement of the ethical values the business expects staff to follow
  4. A forecast of the cash balance the business expects each month

Explanation

An objective is a specific, measurable goal that guides decision-making and against which performance can be judged. Aims are broader intentions, whereas objectives translate those aims into targets, often with a timeframe.

Question 7Business organisation and environment

A company sets the objective of increasing market share from 18% to 22% within two years. Which type of objective is this?

  1. Survival objective
  2. Social objective
  3. Growth objective Correct answer.
  4. Environmental objective

Explanation

Market share measures the proportion of a market's sales captured by one firm, so raising it is a growth objective. Growth objectives focus on expanding scale, sales or competitive position rather than on social or environmental outcomes.

Question 8Business organisation and environment

In a company, which group holds ultimate legal control and elects the board of directors?

  1. The creditors
  2. The employees
  3. The managers
  4. The shareholders Correct answer.

Explanation

Shareholders own the company and exercise control by voting at general meetings, including electing directors. Managers run day-to-day operations but derive their authority from the board appointed by shareholders.

Question 9Business organisation and environment

Two friends want unlimited liability protection to be avoided and wish to keep full control while sharing the workload. Which business structure best fits this description?

  1. A private limited company Correct answer.
  2. A sole proprietorship
  3. A franchise
  4. A public limited company

Explanation

A private limited company gives shareholders limited liability while remaining privately owned, so the founders can retain control and share responsibilities. A public limited company would also offer limited liability but exposes ownership to outside investors through a stock exchange listing.

Question 10Business organisation and environment

Which feature distinguishes a public corporation from a public limited company?

  1. A public corporation must publish annual accounts, while a public limited company need not.
  2. A public corporation is owned by the state, while a public limited company is owned by private shareholders. Correct answer.
  3. A public corporation always operates without any government funding.
  4. A public corporation cannot employ more than a fixed number of staff.

Explanation

A public corporation is a state-owned enterprise established by government to provide a service, whereas a public limited company is owned by private shareholders who can trade shares. Both are separate legal entities with limited liability.

Question 11Business organisation and environment

A business's mission statement is best described as which of the following?

  1. A detailed financial plan for the coming financial year
  2. A declaration of the organisation's overall purpose and values Correct answer.
  3. A list of the legal obligations the firm must meet
  4. A schedule of the firm's short-term production targets

Explanation

A mission statement communicates why the organisation exists and the values that guide it, providing a broad sense of direction. It is not a measurable target or a financial plan, which are handled through objectives and budgets.

Question 12Business organisation and environment

A firm's directors prioritise paying dividends to shareholders over investing in cleaner production equipment. Which concept does this illustrate most directly?

  1. Market segmentation
  2. Economies of scale
  3. Stakeholder conflict Correct answer.
  4. Corporate social responsibility

Explanation

When satisfying one stakeholder group's interests reduces the benefits available to another, the business faces stakeholder conflict. Here shareholders gain dividends while environmental or community stakeholders lose the benefit of cleaner equipment.

Question 13Business organisation and environment

Which group is most likely to be classified as an internal stakeholder of a supermarket chain?

  1. A local resident's action group opposing a new store
  2. A household that shops weekly at the store
  3. A member of the chain's store management team Correct answer.
  4. A supplier of fresh produce to the chain

Explanation

Internal stakeholders work within the organisation, such as employees and managers, and are directly affected by its decisions. Customers, suppliers and community groups are external stakeholders because they sit outside the firm.

Question 14Business organisation and environment

Which of the following is an example of an external economy of scale available to firms in a region?

  1. A firm spreading its fixed costs over a larger output
  2. A single large firm negotiating bulk discounts from its own suppliers
  3. A firm reducing waste through a new internal quality programme
  4. A regional cluster of similar firms attracting a pool of skilled labour Correct answer.

Explanation

External economies of scale arise from the growth of the whole industry or region, benefiting firms collectively, such as a shared skilled labour pool. Internal economies result from a single firm's own expansion or efficiency improvements.

Question 15Business organisation and environment

A firm doubles output but finds that average costs rise because coordination becomes difficult and staff feel alienated. Which term describes this situation?

  1. Productivity growth
  2. Internal diseconomies of scale Correct answer.
  3. Economies of scope
  4. External economies of scale

Explanation

Internal diseconomies of scale occur when a firm becomes too large and average costs rise due to problems such as poor communication, low morale and coordination difficulties. They result from the individual firm's own growth rather than from industry-wide factors.

Question 16Business organisation and environment

Why might a small independent shop survive in a market dominated by large chain retailers?

  1. It faces no competition because large firms are legally restricted.
  2. It can offer personal service and flexibility in a niche the chains overlook. Correct answer.
  3. It benefits from lower average costs than the chains through bulk buying.
  4. It enjoys external economies of scale unavailable to larger rivals.

Explanation

Small firms can compete by exploiting niche markets, offering personalised service and responding quickly to local customer needs, which large chains may find difficult. These advantages relate to flexibility and differentiation rather than cost leadership.

Question 17Business organisation and environment

A government raises the minimum wage and increases spending on public transport. Which classification best fits these actions?

  1. Monetary policy measures
  2. Fiscal and labour market policy measures Correct answer.
  3. Competition policy measures
  4. Trade protection measures

Explanation

Government spending is fiscal policy, while setting a minimum wage is a labour market intervention. Monetary policy, by contrast, is conducted through interest rates and money supply, typically by a central bank.

Question 18Business organisation and environment

Which of the following is most likely to increase the level of business uncertainty in an economy?

  1. A stable legal framework that firms have known for many years
  2. A sharp and unexpected change in interest rates Correct answer.
  3. A gradual rise in the number of skilled graduates
  4. A long-standing agreement on product safety standards

Explanation

Uncertainty rises when firms cannot reliably predict future conditions, and an unexpected interest rate change alters borrowing costs and demand without warning. Stable rules and gradual labour supply trends are predictable and therefore reduce uncertainty.

Question 19Business organisation and environment

A firm's managers and workers are negotiating a new pay agreement. In stakeholder terms, what is this situation?

  1. A conflict of interest between internal stakeholders Correct answer.
  2. A form of government regulation
  3. An external audit of the firm's accounts
  4. A merger between two rival businesses

Explanation

Managers and employees are both internal stakeholders, and negotiating pay reveals differing interests over how the firm's resources are shared. Such tensions are a normal feature of stakeholder relationships within an organisation.

Question 20Business organisation and environment

A business decides to relocate production abroad to reduce labour costs. Which stakeholder group is most likely to be harmed in the short term?

  1. Overseas workers who gain new jobs
  2. Customers expecting lower prices
  3. Shareholders expecting lower costs
  4. Domestic employees whose jobs may be lost Correct answer.

Explanation

Offshoring to cut labour costs usually threatens the jobs of existing domestic employees, making them the group most directly harmed in the short term. Other groups may gain: overseas workers get employment and shareholders or customers may benefit from lower costs.

Question 21Business organisation and environment

Which of the following best explains why a firm's average costs may fall as it expands its output?

  1. Its revenue per unit falls as output increases
  2. Its fixed costs are spread over more units of output Correct answer.
  3. Its variable costs per unit must rise with every extra unit
  4. Its total fixed costs increase in direct proportion to output

Explanation

Fixed costs do not change with output in the short run, so dividing them across more units lowers average fixed cost per unit. This is a key internal economy of scale and helps explain why larger output can reduce average total cost.

Question 22Business organisation and environment

A social enterprise reinvests most of its profits into training unemployed young people. Which statement best describes this organisation?

  1. It relies entirely on donations and never sells goods or services
  2. It maximises profit for distribution to private shareholders
  3. It pursues social aims while still trading to generate income Correct answer.
  4. It is a government department funded only by taxation

Explanation

A social enterprise trades in markets to earn income but directs surplus towards a social mission rather than maximising returns to owners. This distinguishes it from charities that rely mainly on donations and from conventional profit-maximising firms.

Question 23Business organisation and environment

Which factor is most likely to increase the number of businesses choosing to operate as private limited companies rather than sole proprietorships?

  1. A rise in the administrative cost of incorporation
  2. A legal ban on shareholders owning shares in private firms
  3. A desire for limited liability and easier access to finance Correct answer.
  4. A reduction in the tax advantages of incorporation

Explanation

Incorporation offers limited liability, protecting owners' personal assets, and creates a separate legal entity that can raise finance by issuing shares. These advantages encourage founders to choose a private limited company over sole trader status.

Question 24Business organisation and environment

A firm states that it aims to be the most sustainable business in its industry. This statement is best classified as which of the following?

  1. A cash-flow forecast
  2. A break-even calculation
  3. A corporate aim Correct answer.
  4. An operational budget

Explanation

A broad aspiration such as becoming the most sustainable business is a corporate aim, expressing long-term direction rather than a specific measurable target. Objectives would then translate this aim into measurable goals with timeframes.

Question 25Business organisation and environment

A government wishes to encourage new firms to enter a market. Which measure would most directly support this?

  1. Offering grants and reduced registration fees for start-ups Correct answer.
  2. Tightening planning restrictions on new business premises
  3. Raising tariffs on imported raw materials
  4. Increasing the minimum wage for all employees

Explanation

Grants and lower registration costs reduce the financial barriers to starting a business, making entry more attractive. Measures that raise costs or restrict premises would discourage rather than encourage new entrants.

Question 26Business organisation and environment

A sole trader decides to incorporate as a private limited company. Which change in legal status does this conversion directly produce?

  1. The owner gains limited liability and the business becomes a separate legal entity Correct answer.
  2. The business becomes owned and controlled by the government
  3. The owner immediately gains the right to sell shares on a stock exchange
  4. The owner becomes personally liable for all company debts

Explanation

Incorporation creates a separate legal personality, so the company itself contracts and bears debts, and shareholders' liability is limited to the capital they subscribed. Listing on a stock exchange requires conversion to public limited company status, which is a separate step.

Question 27Business organisation and environment

A bakery's owner wants to expand but refuses to share ownership or decision-making with outsiders. Which source of finance best fits this constraint?

  1. Issuing new ordinary shares to outside investors
  2. A venture capital investment in exchange for equity
  3. Retained profit reinvested from previous years Correct answer.
  4. A stock exchange flotation

Explanation

Retained profit is internally generated and carries no dilution of ownership or control, so it matches the owner's refusal to share decision-making. The other options all involve bringing in external owners who would acquire voting rights or influence.

Question 28Business organisation and environment

Which statement best explains why a firm's average variable cost may fall over a range of output in the short run?

  1. The firm has sold off unused factory space
  2. Specialisation of labour and better use of indivisible inputs raise productivity Correct answer.
  3. The firm is paying lower prices for its raw materials
  4. Fixed costs are being spread over a larger number of units

Explanation

In the short run, at least one factor is fixed, and increasing the variable factor allows greater division of labour and fuller use of indivisible inputs, raising output per unit of input. Falling average variable cost therefore reflects rising factor productivity rather than the spreading of fixed costs.

Question 29Business organisation and environment

A government introduces a law requiring all food manufacturers to display full nutritional information. Which objective is this policy most directly pursuing?

  1. Protecting consumers from misleading information Correct answer.
  2. Reducing the market power of large manufacturers
  3. Raising tax revenue from the food sector
  4. Encouraging exports of processed foods

Explanation

Mandatory labelling addresses information asymmetry, allowing buyers to make informed choices and protecting them from deception. Competition policy, taxation and trade promotion are separate government objectives served by different instruments.

Question 30Business organisation and environment

A firm's managers decide to close a loss-making branch, and employees there lose their jobs. Which statement best describes the stakeholder conflict shown?

  1. Shareholders and managers are in conflict over dividend policy
  2. Employees bear the social cost of a decision taken to protect owners' returns Correct answer.
  3. Customers have gained influence over the firm's strategy
  4. The government is the dominant stakeholder in the decision

Explanation

Closure decisions typically weigh owners' financial returns against employees' job security, producing a trade-off in which one group bears costs while another benefits. The stem describes exactly this divergence between employee and owner interests.

Question 31Business organisation and environment

Which of the following best describes an internal diseconomy of scale?

  1. A firm's costs rise because a supplier raises its prices across the whole industry
  2. A firm's costs rise because traffic congestion in its region delays deliveries
  3. A firm's costs rise because new environmental taxes are introduced
  4. A firm's costs rise because managing a larger workforce requires more layers of supervision Correct answer.

Explanation

Internal diseconomies arise from problems of managing the firm itself as it grows, such as communication breakdowns, weaker control and additional supervisory layers. External diseconomies instead come from conditions outside the firm, such as regional congestion or industry-wide input prices.

Question 32Business organisation and environment

An economy enters a recession and household incomes fall sharply. Which consequence for businesses is most likely?

  1. Business confidence rises because input costs fall
  2. Demand for normal goods falls while demand for inferior goods may rise Correct answer.
  3. Demand for inferior goods falls and demand for luxuries rises
  4. All firms experience rising sales as consumers substitute cheaper products

Explanation

Falling incomes reduce demand for normal and luxury goods, but consumers may switch towards cheaper substitutes, so inferior goods can see demand increase. This income-driven substitution is the standard classification of goods in a downturn.

Question 33Business organisation and environment

Which of the following is the clearest example of an opportunity rather than a threat in a SWOT analysis for a small online retailer?

  1. The firm's website crashes during peak trading
  2. A new government scheme offers grants for firms adopting e-commerce systems Correct answer.
  3. A rival opens a store in the same town
  4. A key delivery partner raises its charges

Explanation

Opportunities are favourable external developments the firm could exploit, and an external grant scheme for e-commerce fits that definition. The other items are either external threats or internal weaknesses.

Question 34Business organisation and environment

A manufacturer's fixed costs are $200,000, and each unit is sold for $50 with variable costs of $30 per unit. Which statement about the break-even position is correct?

  1. Break-even output is 4,000 units and each unit sold beyond that adds $20 of contribution Correct answer.
  2. Break-even output is 6,667 units and each unit sold beyond that adds $30 of contribution
  3. Break-even output is 2,500 units and each unit sold beyond that adds $20 of contribution
  4. Break-even output is 10,000 units and each unit sold beyond that adds $50 of contribution

Explanation

Unit contribution is the selling price minus variable cost, $50 − $30 = $20, so break-even is $200,000 ÷ $20 = 10,000 units. Each sale above break-even contributes $20 towards profit.

Question 35Business organisation and environment

Which of the following best explains why a firm might deliberately choose to remain small despite profitable growth opportunities?

  1. The owner values personal control and close customer relationships over scale Correct answer.
  2. Small firms always have lower average costs than large firms
  3. Small firms are exempt from all legal regulation
  4. Small firms cannot access bank loans

Explanation

Owners of small firms often pursue non-financial objectives such as independence, flexibility and personal service, which growth through additional owners or staff could dilute. The other statements are inaccurate generalisations about cost, regulation or finance.

Question 36Business organisation and environment

A country's central bank raises interest rates sharply. Which effect on businesses is most direct?

  1. The number of new business registrations rises
  2. Demand for the country's exports rises immediately
  3. Wage rates across all industries fall automatically
  4. The cost of servicing existing bank loans rises and investment becomes less attractive Correct answer.

Explanation

Higher interest rates raise the cost of borrowing, so loan repayments and new investment appraisal become less favourable, discouraging capital spending. Export demand and wages respond indirectly, if at all, and are not the direct effect.

Question 37Business organisation and environment

Which of the following correctly distinguishes a mission statement from a corporate objective?

  1. A mission statement is written only for shareholders, while an objective applies only to employees
  2. A mission statement changes annually, while an objective remains fixed indefinitely
  3. A mission statement is a quantified target with a deadline, while an objective is a broad purpose
  4. A mission statement expresses the organisation's overall purpose, while an objective is a specific measurable goal Correct answer.

Explanation

A mission statement communicates why the organisation exists and whom it serves, in broad aspirational terms. Objectives translate that purpose into specific, measurable targets that guide decisions and can be reviewed.

Question 38Business organisation and environment

A firm's directors reject a takeover offer that would raise shareholder value but would end the directors' own generous contracts. Which concept does this situation best illustrate?

  1. Agency problem between owners and managers Correct answer.
  2. External economy of scale
  3. Divorce between ownership and location
  4. Stakeholder conflict between customers and suppliers

Explanation

The agency problem arises when managers, acting as agents, pursue their own interests rather than those of the principals who own the firm. Rejecting a value-raising bid to protect personal contracts is a classic example of this divergence.

Question 39Business organisation and environment

Which of the following is the best example of a business responding to a technological change in its external environment?

  1. A retailer introduces a mobile ordering app after smartphone use becomes widespread Correct answer.
  2. A retailer changes its logo to mark an anniversary
  3. A retailer raises prices because its rent has increased
  4. A retailer reduces staff hours because sales have fallen

Explanation

Technological change in the external environment includes new devices and digital channels, and adopting a mobile app is a direct response to that shift in customer behaviour. The other options respond to cost, demand or marketing considerations rather than technology.

Question 40Business organisation and environment

A firm invests in automated machinery that replaces some manual tasks. Which outcome is most consistent with the short-run effect on its cost structure?

  1. Fixed costs rise while variable costs per unit fall, raising operating leverage Correct answer.
  2. Both fixed and variable costs fall immediately
  3. Variable costs rise while fixed costs remain unchanged
  4. Average total cost must fall at every level of output

Explanation

Automation substitutes capital for labour, adding to fixed costs such as depreciation and maintenance while reducing labour cost per unit, which is variable. The result is higher operating leverage: profits become more sensitive to changes in sales volume.

Question 41Human resource management

A firm wants to fill a senior marketing manager post by promoting an existing employee rather than hiring externally. Which term best describes this approach?

  1. External recruitment
  2. Internal recruitment Correct answer.
  3. Redundancy
  4. Outsourcing

Explanation

Internal recruitment means filling a vacancy with a candidate who already works for the organisation, often through promotion or transfer. It contrasts with external recruitment, which brings in someone from outside the business.

Question 42Human resource management

Which document is sent by a business to a shortlisted applicant and sets out the duties, pay, and conditions of a post before the applicant accepts it?

  1. Curriculum vitae
  2. Person specification
  3. Contract of employment Correct answer.
  4. Job description

Explanation

A contract of employment is the formal agreement that states pay, hours, duties, and conditions once a candidate accepts an offer. It becomes legally binding on both employer and employee.

Question 43Human resource management

A hotel chain uses a small panel of managers to observe candidates completing a simulated guest-complaint scenario. Which selection method is being used?

  1. Assessment centre exercise Correct answer.
  2. Psychometric profiling
  3. Reference checking
  4. Aptitude testing

Explanation

An assessment centre puts candidates through realistic tasks and simulations observed by trained assessors. It is used to judge behaviour and skills that interviews alone may not reveal.

Question 44Human resource management

Which statement best explains why induction training benefits a newly hired employee?

  1. It replaces the need for any further training during employment.
  2. It guarantees the employee will pass their probationary period.
  3. It introduces the employee to the organisation's culture, policies, and colleagues. Correct answer.
  4. It teaches advanced technical skills that experienced staff require.

Explanation

Induction familiarises a new recruit with the workplace, its rules, and its people, which helps them settle in and become productive sooner. It is introductory rather than advanced in nature.

Question 45Human resource management

A factory trains assembly workers by having them watch an experienced colleague perform the task on the production line. Which type of training is this?

  1. Off-the-job training
  2. Induction training
  3. Cognitive training
  4. On-the-job training Correct answer.

Explanation

On-the-job training takes place in the normal workplace while the employee carries out real tasks under guidance. It is practical and low-cost but can pass on existing poor habits.

Question 46Human resource management

According to Maslow's hierarchy of needs, which level must generally be satisfied before esteem needs become a motivator?

  1. Social needs Correct answer.
  2. Self-actualisation
  3. Safety needs
  4. Physiological needs

Explanation

Maslow arranged needs in a hierarchy in which lower needs are met before higher ones. Social (belonging) needs sit below esteem needs, so they precede them in the sequence.

Question 47Human resource management

A manager gives a sales assistant a bonus for exceeding a monthly target. Which motivation theory most directly explains this as a motivator?

  1. Maslow's hierarchy of needs
  2. Vroom's expectancy theory
  3. Herzberg's two-factor theory
  4. Taylor's scientific management Correct answer.

Explanation

Taylor's scientific management emphasised financial reward as the main motivator, linking pay directly to output. A performance bonus tied to a target reflects that principle.

Question 48Human resource management

In Herzberg's two-factor theory, which of the following is classified as a hygiene factor?

  1. Recognition from managers
  2. The work itself
  3. Opportunities for advancement
  4. Working conditions Correct answer.

Explanation

Herzberg classified working conditions, pay, and company policy as hygiene factors. Their absence causes dissatisfaction, but improving them does not by itself create lasting motivation.

Question 49Human resource management

A software firm lets developers spend part of their week on self-chosen projects and gives them responsibility for deciding how work is completed. Which motivational approach does this illustrate?

  1. Job rotation
  2. Job enrichment Correct answer.
  3. Piece-rate pay
  4. Job enlargement

Explanation

Job enrichment increases the depth of a role by adding responsibility, autonomy, and scope for achievement. Giving staff control over how they work is a classic enrichment technique.

Question 50Human resource management

Which statement best describes a democratic leadership style?

  1. The leader gives the team complete freedom with no guidance.
  2. The leader consults the team before making decisions. Correct answer.
  3. The leader relies on strict rules and close supervision.
  4. The leader makes all decisions without consulting the team.

Explanation

A democratic leader involves team members in discussion and decision-making while retaining final responsibility. This can raise morale and commitment but may slow decisions.