External costs and external benefits
An external cost (negative externality) is harm from business activity borne by a THIRD PARTY outside the transaction and not paid for through the price — e.g. factory waste harming a fishing community. An external benefit is a positive side-effect enjoyed by third parties who do not pay, e.g. staff a firm trains later helping other employers. The external-cost definition needs three elements: a cost or harm; a third party; no compensation through the price.
Sustainability, controls and responses
Sustainable development meets today's needs without reducing future generations' ability to meet theirs. Threats to it: depleting non-renewable resources, pollution, habitat loss, climate change. Government tools: legislation (emission limits, bans), taxes and charges (carbon/pollution levies), fines, subsidies for clean tech, tradeable permits. Firms respond by using renewable energy, cutting packaging, reducing waste and sourcing from certified suppliers.
Ethics and the conflict with profit
Ethical behaviour means acting on moral standards, beyond what is merely legal; a firm can obey every law yet act unethically. Issues: fair pay, no child labour, honest marketing, animal welfare. It often raises costs (above-minimum wages, certified suppliers, cleaner tech), cutting short-term profit — but can build reputation, cut staff turnover and avoid fines, supporting long-term profit.
Drawn from real examiner reports.
Environmental vs ethical actions
Environmental issues concern the natural world — pollution, emissions, resource depletion, waste. Ethical issues concern moral treatment of people and animals — fair pay, honest marketing, animal welfare. Asked for environmentally friendly actions, naming animal testing or fair pay (both ethical) scores zero. Rule: environmental = natural world; ethical = people/animals.
June 2023 P11 Q4(c): asked for environmentally friendly actions, responses about animal testing (an ethical issue) gained zero marks.
Being ethical is not just obeying the law
Legal compliance means obeying the rules; ethics means going beyond them to what is morally right. A firm can pay only the legal minimum wage, use a supplier that legally uses child labour, or make technically true but misleading claims — all legal, yet unethical. Asked about ethical behaviour, describe voluntary choices above the legal minimum, not just "obey the law".
November 2023 P11 Q3(d): being ethical and following laws were treated as the same thing; ethics requires voluntary choices above the legal minimum.
Ethics benefits: show the business gain
Asked how ethical behaviour benefits the BUSINESS, candidates describe benefits to customers, workers or society and stall at knowledge. Give the chain to a business outcome: fair-trade sourcing → attracts ethical customers → higher sales; above-minimum pay → lower staff turnover → lower recruitment cost → higher profit. End the chain at revenue, cost, profit or risk.
June 2022 P13 Q3(d) and June 2023 P13 Q3(d): candidates described benefits to customers rather than to the business itself.
External cost is not costs outside the firm
The external-cost definition is widely lost. "Costs outside the business" or "costs to the environment" score zero — they omit the key elements. A full definition has three: a cost or harm; borne by a third party outside the transaction; not compensated through the price. Ground it in an example, such as pollution harming residents who never agreed to bear it.
June 2022 P13 Q4(a): the external costs definition was widely unknown — rewording the term gained zero marks.
Environmental legal controls are specific
Asked about environmental legal controls, candidates wrongly cite minimum-wage or health-and-safety law. Environmental controls mean emission limits, pollution taxes, waste-disposal rules and product bans. Also avoid "it protects reputation" as a point here — legal controls apply to all firms equally, so reputation is not the reason they matter.
June 2022 P12 Q2(d): candidates cited minimum-wage or health-and-safety law for environmental controls; reputation was not accepted, as controls affect all firms equally.
Sustainable development is not ethics
These overlap but are distinct. Sustainable development is about protecting the natural environment for future generations. Ethical behaviour is about moral choices toward people, animals and society. A firm can cut carbon emissions (sustainable) yet pay poverty wages (unethical). A sustainability answer that only discusses moral conduct earns nothing here.
November 2023 P12 Q2(b): sustainable development and being ethical were confused; they are distinct concepts.
Evaluate: weigh both sides, then judge
A "should the business...? Justify" answer saying only "yes, it is right" or "no, it costs money" stays at Level 1. Argue both sides, then judge which outweighs the other in THIS context — e.g. for a brand-driven firm, reputation makes ethics pay long-term.
Pressure groups: trace the mechanism
Do not just name a method; trace how it bites: a boycott or online campaign → bad publicity → consumers switch → sales fall → the firm changes. Then say which method is most powerful here — a brand-reliant firm is more exposed to boycotts than a commodity producer.
Apply it to the named business
Application marks need the specific firm, not a generic answer. Tie each point to the business in the case — its industry, its product, the pressure group or the named pollutant. A different contextual reference is needed for each separate point.
Topic 6.2 covers two related but distinct areas:
The two overlap (e.g. a business that voluntarily reduces emissions is both acting sustainably and ethically), but in exam questions they are treated separately. Never substitute an ethical example when asked for an environmental one, or vice versa.
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