Lesson 3.7.7

3.7.7 Analysing external environment: the competitive environment Quiz: AQA Business, Unit 7

20 questions

Written by Revision Ninja · Last reviewed 11 October 2026

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Lesson 3.7.7, Analysing external environment: the competitive environment: 20 multiple choice questions for the AQA Business (7132), Unit 7: Analysing the strategic position of a business, written with Revision Ninja.

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The 20 questions

  1. Which of Porter's five forces refers to the threat of new firms joining the industry?

    • Supplier power, which depends on how many suppliers are able to provide key inputs
    • Buyer power, which depends on how easily customers can switch between competing suppliers
    • Rivalry, which depends on the number of firms competing directly with one another in the market
    • Entry threat, which depends on the barriers to entry in the industry

  2. Which of these is a barrier to entry in an industry?

    • A large number of small firms in the market, each with a tiny share of total industry sales each year
    • Low start-up costs that allow any firm to enter the market with very little money in the bank
    • Customers who can switch to a rival supplier at no cost at any time they choose to do so
    • Large economies of scale enjoyed by established firms that new entrants cannot match at first

  3. Buyer power is typically high when:

    • Buyers are few and large, purchase in volume, and can switch easily between suppliers
    • Buyers are numerous and small, purchase rarely, and have no alternative suppliers to choose from in any market
    • Buyers have strong brand loyalty to one firm and face high costs of switching to any alternative supplier
    • Buyers have no ability to compare prices and are unaware of the products offered by competing firms

  4. Supplier power is typically high when:

    • There are few suppliers of a key input that has no close substitute
    • The firm buys inputs that are cheap and readily available from many sources across the world
    • There are many suppliers of a standard commodity input and the firm can buy from any of them easily
    • The firm can easily switch between many alternative suppliers without any cost or delay in production

  5. Rivalry in an industry is likely to be most intense when:

    • There are many similar competitors, market growth is slow and fixed costs are high
    • There is a single firm with a monopoly over the market and no close rivals of any kind in the sector
    • Products are highly differentiated and customers are loyal to brands that rivals cannot easily copy
    • The market is growing very rapidly and demand exceeds the supply of every firm in the industry

  6. What is the substitute threat in Porter's five forces?

    • The risk that customers switch to a different product that meets the same underlying need
    • The risk that the firm's own employees leave to work for a rival firm in the same market sector
    • The risk that the government replaces the firm's products with its own goods for public use
    • The risk that a supplier replaces the firm with another buyer for its output in the market

  7. Which of the following is NOT one of Porter's five forces?

    • Buyer power exercised by customers over prices and terms
    • Government policy towards exports and trade with other countries
    • Rivalry between existing competitors in the same market
    • Entry threat from new firms that might join the industry

  8. A new digital platform lowers the cost of setting up a business in a market. What does this do to the entry threat?

    • It removes all rivalry in the market, because new entrants can never compete with established firms
    • It lowers the entry threat, because more barriers to entry are created by lower start-up costs
    • It raises the entry threat, because barriers to entry fall and more firms can enter the market
    • It has no effect on the entry threat, because barriers to entry are unaffected by technology at any time

  9. Why might a firm choose to pursue differentiation when buyer power is high?

    • Differentiation increases the number of competitors, which reduces the power of buyers in the market
    • Differentiated products reduce direct price comparison and can make buyers less price-sensitive
    • Differentiation makes buyers more powerful because customers then have more information to compare prices
    • Differentiation has no effect on buyer power because customers always buy the cheapest product available

  10. A firm faces a supplier with strong power over a key component. What strategic option might it consider?

    • Backward vertical integration, or the development of a second source of supply to reduce dependence
    • Forward vertical integration into all of the supplier's markets to take control of its entire business
    • Increasing its orders from the supplier to strengthen its bargaining position in future price negotiations
    • Ignoring the supplier because the firm's own customers are powerful and set the price of the final product

  11. Which example best illustrates the substitute threat?

    • Two supermarkets selling the same brand of bread at very similar prices in the same town
    • A new firm entering the market for electric cars with a similar product to existing firms
    • A supplier raising the price of components used to build the firm's main product
    • Video streaming services replacing DVD rental as a way of watching films at home

  12. In a market with a four-firm concentration ratio of 35%, 25%, 15% and 10%, what is the concentration ratio?

    • 85%
    • 100%
    • 60%
    • 35%

  13. Which factor is most likely to lower the profit potential of an industry?

    • Few buyers who make small and infrequent purchases from the firms in a fragmented industry
    • Strong buyer power, high rivalry and many substitutes available to customers
    • Low rivalry, high barriers to entry and few substitutes for the industry's products in the market
    • Powerful suppliers that cannot be replaced, which keeps input costs stable for all firms in the sector

  14. Evaluate the usefulness of Porter's five forces analysis for strategic decision making.

    • It guarantees a firm's success because it shows exactly which strategy will earn the highest profit in every market
    • It is only useful to firms with no competitors, so it has little relevance to firms in competitive markets
    • It structures the analysis of industry attractiveness, but it is a snapshot, so forces must be reassessed as conditions change
    • It replaces all other forms of analysis, including financial ratios, because it covers every factor that affects profit

  15. A business in a market with low entry barriers, many substitutes and high rivalry decides to compete on cost. Why is this strategy risky?

    • Price competition may intensify, eroding margins if rivals also cut prices and new entrants keep arriving
    • Low costs remove the threat of substitutes because customers never switch to any other product at all
    • High rivalry means that customers will always pay the highest possible price for the firm's products
    • Cost leadership is impossible in any market, so the firm will fail immediately once it begins competing

  16. Which factor would most increase the entry threat for an aircraft manufacturer?

    • Very high capital costs and long development times that new firms would struggle to fund
    • Customers who switch between suppliers at no cost and show no loyalty to any brand in the market
    • A large number of very small firms that each supply a tiny share of the total sales in the market
    • Low research requirements and standard components that any firm could buy easily from many suppliers

  17. A firm claims its five forces analysis shows an attractive industry. Which is the strongest reason for caution?

    • The five forces only measure supplier power, so the analysis ignores all other competitive pressures in the market
    • The forces can change over time, for example through new technology, so the conclusion may quickly become outdated
    • The five forces cannot be applied to any industry in the economy, so the analysis is meaningless
    • The five forces are always accurate and never change, so the conclusion can safely be relied upon indefinitely

  18. Which example shows brand loyalty acting as a barrier to entry?

    • Suppliers who want to sell their components to the largest firm in the sector and ignore new entrants
    • Customers who are loyal to an established brand are reluctant to switch to the products of a new entrant
    • Regulators who check the safety of products before they can be sold to customers in the market
    • Customers who buy whatever is cheapest on the day are quick to switch to any new firm entering the market

  19. A market's four-firm concentration ratio rises from 40% to 70% over five years. What does this suggest?

    • The market has been split evenly between many firms, which means that none of them has any power
    • The market has stopped growing, so no firm in the sector is able to increase its sales or profit at all
    • The market is becoming more concentrated, so a few firms may gain greater market power over price and output
    • The market is becoming more competitive, because the largest firms are losing share to a growing number of new entrants

  20. Which statement about rivalry is correct?

    • Rivalry is always least intense in markets where there are many firms with identical products and low fixed costs
    • Rivalry tends to be less intense where firms are differentiated and the market is growing strongly
    • Rivalry tends to be most intense where firms are highly differentiated and the market is growing very strongly
    • Rivalry is unaffected by the number of firms in a market or by how quickly demand is growing over time

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