6.2 Environmental & Ethical Issues (Cambridge International IGCSE Business): Exam Questions

Outline one external benefit and one external cost that Raul’s business activity might create.

[case-study] Raul owns a small farm that grows oranges. His farm is based in country Z. Like all primary sector activities, farming creates external costs and external benefits. Raul sells all 600 tonnes of his oranges direct to a drinks manufacturer in country E. The Government of country E plan to introduce either import tariffs or quotas. Raul said: ‘This might help country E’s Government achieve one of its economic objectives but how will it affect companies that export to country E?’

Define ‘externalities’

Outline two ways NLR might respond to environmental pressures.

[case-study] NLR manufactures a range of branded skincare products including hand cream. Packaging of the products is important. Like many businesses, NLR makes use of market segmentation. The Marketing Director knows the stage of the product life cycle can influence NLR’s pricing decisions. He is analysing market research data. This shows 85% of consumers expect businesses to respond to environmental pressures.

Identify two ways business activity could have an impact on the environment.

Identify two ways a business could contribute to sustainable development.

Define 'business ethics'

Define 'pressure group'

Explain one advantage and one disadvantage to ALB of trying to protect the environment.

[case-study] Tom started ALB 5 years ago making trainers (sneakers) out of sustainable materials such as wool. One of ALB’s objectives is to protect the environment. As part of his research, Tom calculated some costs that he could use in his break-even analysis. An extract is shown in the below figure. ALB uses retailers to distribute its products. Tom thinks a successful entrepreneur has to be a good manager.

Explain two ways RWB might be affected by new legal controls over business activities which affect the environment.

[case-study] RWB manufactures buses. 1,200 people work in its factory. All employees receive off-the-job training. RWB uses financial rewards to motivate its employees. Last year, RWB made a $1.7 million loss. The Managing Director said: ‘There are many external influences affecting our business, including changes in the level of unemployment and new legal controls over business activities which affect the environment.’

Do you think manufacturing businesses should always respond to environmental pressures? Justify your answer.

Do you think a business being ethical will always lead to lower profits? Justify your answer.

Explain one benefit and one limitation to ACP of being ethical.

[case-study] ACP manufactures computers. Being ethical is important to ACP. The business employs 3000 workers in its factory. ACP imports 65% of its raw materials. As internal users of accounts, the directors plan to analyse ACP’s financial performance using profitability ratios. The Finance Director thinks making a profit is more important for a business than managing its cash flow.

Extract:

{align=center} Furniture Outdoors (FO)

FO has been a private limited company for 20 years. It is owned and run by the Chan family and is located in country Z. In country Z the secondary sector has become relatively more important as the country has developed. FO is a manufacturer of wooden furniture that is suitable for outdoor use. Its products include tables, chairs and other outdoor furniture.

Customers order online from the FO website. The furniture is then delivered to customers in country Z using FO’s own delivery vehicles. However, FO is considering changing to selling its furniture through either wholesalers or large retailers in country Z.

The Chan family have the business objective of contributing to sustainable development. FO only uses sustainably sourced wood when making furniture. This is from local forests in country Z and the wood is more expensive than imported alternatives.

For many years FO shareholders have reinvested profits to provide the finance for growth. FO recently took over 2 other furniture businesses in country Z and plans further takeovers. The Chan family plan to continue to control and manage FO after this expansion. The leadership style of these two companies is very different to that of FO and their factories are located several miles away from FO in different regions of country Z.

FO need to manage all its resources effectively. It tries to use the same components such as nails, brackets and paint for all its furniture designs. It is important to not run out of raw materials and so orders to suppliers must be carefully planned to avoid late deliveries. FO want to keep wastage of materials to a minimum. FO also need to consider how many employees are required to complete each order.

{align=center} Appendix 1 - FO website advertisement

FO - the only business to go to when you need new outdoor furniture for your garden.

FO produce a range of high quality furniture to meet all your needs for fashionable, well designed outdoor furniture. Be reassured our furniture is only made from the highest quality wood from sustainable forests.

Our furniture is only available online so order today and have your furniture delivered in the next few weeks. Email any questions to us and we will reply quickly.

{align=center} Appendix 2

{align=center} Extract of cost, selling price and sales data for one of FO’s products

{align=center} Appendix 3

{align=center} Newspaper article from the Daily News April 2021

{align=center} Sustainable production needed to save the planet

A report from the International Committee for the Planet states that manufacturers must find more sustainable ways to produce their products as global warming is becoming more of an issue.

The report suggests three main ways manufacturers can change:

• Only use raw materials from sources that replace what they have used. This is estimated to raise variable costs by 20%
• Only use packaging that can be recycled. Costs are estimated to increase but the selling price may not rise by more than 10%
• Only use electric vehicles to deliver products. The cost of buying electric vehicles is more than petrol or diesel vehicles. Using electric vehicles could enable variable costs to be reduced by 5%.

Refer to Appendix 2 and Appendix 3 and other information. Consider the following three ways FO could use to contribute to sustainable development:

• only use raw materials from sources that replace what they have used
• only use packaging that can be recycled
• only use electric vehicles to deliver products.

Which way should FO choose to maximise profit? Justify your answer.

Refer to the following insert when answering the question

Extract:

{align=center} MainCity Bakery (MB)

MainCity Bakery (MB) MB is a small bakery that produces bread. Yasin started the bakery 6 months ago with help from the government. Yasin needed a business plan to support his application for government help. An extract from the business plan Yasin produced is shown in Appendix 1. The market research was carried out by Yasin. He asked a small sample of family and friends to fill in a questionnaire. Yasin’s business plan also contained forecast data. MB’s bread is freshly-made every day in the bakery, which is located at the back of MB’s small shop. The bread is then sold the same day. Yasin has 2 employees to help him produce the bread and 1 employee to serve customers in the shop. All employees work 5 days a week and are paid the legal minimum wage. Yasin uses a democratic leadership style. Yasin needs to keep costs low to be competitive. He uses packaging that cannot be recycled. Yasin also buys the cheapest ingredients, most of which are imported. He is planning to use lean production in the bakery but he has to decide which method to use. MB’s main competitors advertise that they only use ingredients from local suppliers. Yasin is thinking of changing the suppliers he uses for ingredients and packaging. He wants MB to have a good ethical image which he could use in advertising. Yasin plans to start making cakes. He is considering two options as outlined in Appendix 2. MB’s fixed costs will increase as there will be additional expenses whichever option he chooses.

{align=center} Appendix 1

{align=center} Extract from Yasin’s business plan for MB

• Of the sample asked:
• 85% want products made using ingredients from local suppliers
• 70% want to purchase cakes as well as bread from a bakery | | Resources | - $10 000 to buy bakery equipment
• Rent for the bakery and shop each month
• $3000 for start-up supplies and ingredients |

{align=center} Appendix 2

{align=center} Forecast data for MB’s cake options

{align=center} Appendix 3

{align=center} Packaging supplier advertisement

{align=center} We only supply packaging made from sustainable sources. This will keep your products fresh and protect the environment. We can deliver your packaging when you need it.

Consider the following three ways Yasin could improve the ethical image of MB.

• Buying all ingredients from local suppliers.
• Using only environmentally friendly packaging.
• Increasing wage rates to 20% above the legal minimum wage.

Which way would be most effective? Justify your answer.

Refer to the following insert when answering the question

Extract:

{align=center} Everyone Theatre (ET)

Zane and Zaara are both actors. They plan to start up a theatre in a low-income area of Main City. Zane and Zaara believe that helping the community is as important as being successful entrepreneurs.

The theatre will be a private sector business and Zane and Zaara have to decide whether to start up as an unincorporated business (partnership) or as a limited company. Zane is planning to prepare a cash-flow forecast for the first year. Zaara knows they will need to set business objectives for the theatre and also decide on a leadership style to use when managing employees. ET will have 24 part-time employees as shown in the organisational chart in Appendix 1.

Zane and Zaara plan to put on performances in the evenings for local people and tourists. There will be 100 seats in the theatre but not all the seats will be sold if the price is too high. The Marketing Manager, Zaara, will need to decide which performances to put on, what price to charge and which refreshments to sell. Zaara will also need to decide between the two possible options for the first performance when the theatre opens. Information on the two options is shown in Appendix 2.

In the daytime the theatre building will be used by Daycare, a local social enterprise. Daycare takes care of young children up to the age of 5 so that low-income family members can go out to work. It also provides education for the children which helps their development and progress before they start school. Some of Daycare’s objectives are different to those of ET

{align=center} Appendix 1

{align=center} Proposed organisational chart for the theatre

Note: The numbers in brackets are the number of part-time employees who work in each department

{align=center} Appendix 2

{align=center} Forecast data for the two possible options for ET’s first performance at the theatre

{align=center} Appendix 3

{align=center} Email from Zane to Zaara

To: Zaara

From: Zane

Date: 1 April 2023

We want to support the local community and we need to make decisions about the following.

Should we:

• Pay fair wages even though they may be higher than those paid by competing theatres?
• Only buy costumes produced in the local community?
• Purchase all refreshments from suppliers that do not pollute the environment?

Consider the following three ethical issues for the theatre.

• Paying fair wages to employees
• Only buying costumes produced in the local community
• Purchasing all refreshments from suppliers that do not pollute the environment

Which ethical issue is likely to have the biggest effect on ET? Justify your answer.

Refer to the following insert when answering the question

Extract:

{align=center} Cell Covers (CC)

Aisha worked for several years for a company that repairs mobile (cell) phones in country Z. She had always wanted to be her own boss and decided to leave her job to set up CC to produce covers for mobile phones. She went into partnership with her brother, Aruna. He worked as an Operations Manager for a company producing children’s clothes.

The sources of finance for the business were $10 000 of savings from each partner and a bank loan of $10 000. CC was also given a government grant to help the new business get started. CC leased a factory, bought some equipment and had to pay some expenses before the business had regular cash inflows.

CC’s current product is a range of standardised phone covers which are sold in the mass market. These are sold using a competitive pricing method through mobile phone shops. CC employs 10 skilled production workers who are paid just above the legal minimum wage. These workers have been trained how to operate the equipment and work as a team on the production line. During the production process there is a lot of waste plastic produced and CC sends this to landfill sites. The business has just completed its second year of trading.

CC is about to launch a new range of individual personalised phone covers. It will need to recruit 2 additional production workers. Aruna knows that the marketing mix for this new product may have to be different to the marketing mix used for the standardised products. The new product will be aimed at a niche market of high income consumers between the ages of 18 to 25. There are few other competitors in this market at present.

{align=center} Appendix 1

{align=center} Newspaper article in Main News

Country Z has been in a recession but the economy is now growing rapidly and unemployment is falling. With higher incomes the majority of people now own a mobile phone. This makes communication easier. Mobile banking is becoming more popular and it is used by a large percentage of the population.

{align=center} Appendix 2

{align=center} Advertisement for CC’s standardised mobile phone covers

Do you want to protect your phone from damage? Then buy a phone cover from CC. Your phone will never be damaged if you use one of our high quality covers!!

We offer a range of standardised covers at competitive prices. The CC range has many different colours and designs so you will stand out from the crowd.

{align=center} Appendix 3

{align=center} Summary of CC’s financial information from the end of the second year of trading ($)

Consider how the changes in the following three government legal controls could affect CC.

• Increase in the minimum wage
• More controls over what can be stated in advertisements
• No waste plastic can be sent to landfill sites

Which change is likely to have the greatest effect on profit? Justify your answer.

Refer to the following insert when answering the question