BUSINESS STUDIES

FORM THREE

PAPER 1

MARKING SCHEME

1. Methods of price determination

a) Price mechanism
b) Bargaining / Haggling
 c) Tendering
d) Auction
e) Price fixing by the Government
1 x 4 = 4 Marks

2. Benefits of operating a small scale business

a) Requires small amount of capital
b) The business is highly flexible
c) Quick decision making
d) Less formalities in formation
e) Faces less risks due to their small size
f) Not heavily taxed
g) Simple to manage
h) Personal contact is possible
Any 4 (1 x 4 = 4 Marks)

3. Circumstances under which a buyer can return goods to the seller

a) When goods delivered to the buyer were nor the right ones
b) When goods are not of the right quantity
c) When goods are damaged on transit
d) When they are not perfectly finished
e) When the goods are nor of wrong quality
f) When they are of the wrong colour
1 x 4 = 4 Marks

4. Types of advertisement
a) Institutional advertising
b) Informative advertising
c) Celebrity advertising
d) Competitive advertising / persuasive
e) Product advertising
 1 x 5 = 5 Marks

5. Differentiating
Perfect competition market Monopoly market
a) Many sellers One seller
b) Firms are price takers The firm is the price maker
c) Price discrimination not possible Price discrimination possible
d) Freedom of entry Barriers of entry
e) No transport costs incurred Transport costs incurred
f) An ideal situation not real It’s a real market
1 x 3 = 3 Marks

6. Circumstances under which a gap may exist in the market

a) Where the quality of products available is low
b) Where the prices in the market are high
c) Where the quantity of products in the market is not adequate
d) Where a certain product is not available in the market
e) Where existing firms do not provide after sales services
f) Where credit facilities are not available
1 x 4 = 4 Marks

7. Reasons why a consumer would buy from a producer

a) To get fresh goods
b) To benefit from after-sales services provided by the producer
c) Need to buy goods at the lowest price possible
d) When he needs goods in large quantities
e) When the consumer needs to have a direct contact with the producer
f) When he needs to avoid exploitation by middlemen
1 x 3 = 3 Marks
8. Sources of energy naturally found in Kenya
a) Solar energy
b) Hydro electric power
 c) Wind power
d) Bio gas
e) Wood fuel
1 x 4 = 4 Marks

9. Features of an efficient transport system

a) Should be safe
b) Should be economical / cheap
c) Should be reliable
d) Should be flexible
e) Should be punctual
f) Appropriate terminals
1 x 4 = 4 Marks

10. a) Demand
b) Demand
c) Demand
d) Supply
e) Supply
1 x 5 = 5 Marks

11. Demerits of under population to a country

a) Underutilization of resources
b) Imbalance in population distribution
c) Low demand for goods which hinders industrial development
d) Shortage of labour
1 x 4 = 4 Marks

12. a) Name clause

b) Capital clause
c) Situation clause
 d) Objective clause
e) Liability clause
f) Declaration clause

13. A – Factors of production

B – Goods and services
C – Payment for factors of production
D – Payment for goods and services
1 x 4 = 4 Marks

14. Factors that interfere with effectiveness of face to face communication

a) Long distance between the sender and recipient
b) Where the two parties are not speaking the same language
c) Noise between communicating parties
d) Poor timing
e) Use of unclear gestures
f) Where command of language is not of the same level
g) Absent-mindedness or lack of concentration
Any four 1 x 4 = 4 Marks

15. Balance Sheet

Nyamakima Traders
Balance Sheet
 As at 6th Jan 2010
Sh Sh Sh Sh
Fixed Assets Capital 260,000
Motor Vehicles 300,000
Current Liabilities
Current assets Creditors 63,000
Debtors 11,500
Bank 1,500
Cash 10,000 23,000
323,000 323,000

Each tick = ½ Mark

Total ½ x 10 = 5 Marks

16. Reasons why most people are not insured

a) Low levels of income
b) Ignorance on benefits of insurance
c) Suspicion / Prejudice against insurance companies
d) Insurance services are not accessible in rural areas
e) High premiums charged
f) Availability of alternative social security schemes
Any other relevant reason
1 x 3 = 3 Marks

17. Merits of parastatals

a) Initial capital is readily available
b) Provides goods / services to public at reduced price
c) Generates revenue to the government
d) Creates employment opportunities
e) Offers competition to the private sector
f) Provides services to areas avoided by private sector
 g) Have limited liabilities
h) Address special social needs
i) Enjoys monopoly power in strategic sectors
1 x 4 = 4 Marks

18. a) Place utility

b) Possession utility
c) Time
d) Form
1 x 4 = 4 Marks

19. Types of unemployment common in Kenya

a) Casual
b) Frictional
c) Seasonal
d) Disguised
e) Real wage
f) Open / Involuntary
g) Technological
h) Residual
1 x 4 = 4 Marks

20. Cash Book

Date Details Cash Bank Date Details Cash Bank
Jan 1 Bal b/f 20,000 Jan 1 Bal b/f 3,000
 2 Onyango 45,000 5 Salaries 5,000
3 Sales 15,000 8 Drawings 2,000

Bal c/d 30,000 40,000

35,000 45,000 35,000 45,000

Each tick = ½ Mark

½ x 10 = 5 Marks

21. a) Assets – Property owned by the business which has monetary value
b) Liability – Amount owed by the business to outsiders
c) Capital – Property / items contributed by the owner to the business
1 x 3 = 3 Marks

22. a) Nature of information

b) Availability of space
c) Cost of storage
d) Purpose of the document
e) Need for future reference
f) Legal requirement
1 x 4 = 4 Marks

23. a) Decrease
b) No effect
c) Decrease
d) Increase
1 x 4 = 4 Marks

24. Advantages of a conducive business environment to a firm

a) Easy access to raw materials
b) Cheap source of capital
 c) Low cost of production
d) Fair play in the market
e) Access to cheap labour
f) Fair competition / Low competition
g) Access to auxiliary services
Any other relevant
1 x 4 = 4 Marks

25. .
Purchase A/C
Date Details Amount Date Details Amount
Jan 1 Njeri 3,000

Njeri Traders A/C

Date Details Amount Date Details Amount
Jan 8 cash 2,000 Jan 1 Purchases 3,000

Cash A/C
Date Details Amount Date Details Amount
Jan 3 Sales 2,000 Jan 5 Drawings 500
8 Njeri 2,000

Sales A/C
Date Details Amount
 Jan 3 Cash 2,000

Drawings A/C
Date Details Amount Date Details Amount
Jan 5 Cash 500

(4marks)