1. The document discusses the impact of business activity on the environment and society, including external costs like pollution. 2. It explores ways to deal with external costs, like government action, pressure from groups, and cost-benefit analysis. 3. National wealth depends on efficient use of resources, while economic growth and living standards increase with higher production, though sustainability is important for lasting benefits.

1. +
Business Activity
Unit 4: National wealth and the impact of
business activity

2. +
Learning outcomes

Develop knowledge of the impact that business activity may
have on the environment, including pollution and global
warming.

Understand the impact that business development may have
on national wealth and the depletion of natural resources and
sustainable development.

3. +
Caring for the environment
We all care about the environment and most business are
conscious about preserving and protecting our environment.
Can you think of any examples where the environment has been
damaged through the impact of business activity?

4. +
Caring for the environment
To make production friendly it could:
Result in new
business
opportunities as
consumers search for
environmentally
friendly products
Present a positive
image that could
boost its reputation
and lead to further
sales
Add costs to
the
business
Lead to the development
of new environmentally
friendly production
techniques thus reduce
wastage and cut costs

5. +
Caring for the environment
Environmental issues have become a global
issue for individuals, businesses and
governments and needs addressing.
For businesses, this is both a threat and
opportunity as you have seen on the
previous slide. There is a danger that current
production methods, products and
distribution will have a negative impact on
people outside the business. People may
take legal action against the business which
can be costly unless they change how they
operate.

6. +
Caring for the environment
Businesses may wish to adopt more ethical policies to prevent
them gaining a poor reputation with their customers.

7. +
Business in context

See worksheet

8. +
Ethical issues and examples
You’ll find lots of examples of business ethical decisions and
dilemmas in areas such as:

9. +
Suppliers
A business cannot claim to be an ethical firm if it ignores unethical
practices by its suppliers such as:

Use of child labour and forced labour

Production in sweatshops

Violation of the basic rights of workers

Ignoring health, safety and environmental standards
An ethical business has to be concerned with the behaviour of all
businesses that operate in the supply chain:

Suppliers

Contractors

Distributors

Sales agents

10. +
Primark
Read the article about Primark and their suppliers.

11. +
Pressure for businesses to act
ethically
Businesses and industries increasingly find themselves facing
external pressure to improve their ethical track record. An
interesting feature of the rise of consumer activism online has
been increased scrutiny of business activities.
Pressure groups are a good example of this. Pressure groups are
external stakeholders they

Tend to focus on activities & ethical practice of multinationals or
industries with ethical issues

Combine direct and indirect action can damage the target
business or industry

12. +
Example of a campaign

13. +
Direct consumer action
Direct consumer action is another way in which business ethics
can be challenged. Consumers may take action against:

Businesses they consider to be unethical in some ways (e.g.
animal furs)

Business acting irresponsibly

Businesses that use business practices they find unacceptable

Consumer action can also be positive – supporting businesses
with a strong ethical stance & record. A good example of this is
Fairtrade.

14. + Is ethical behaviour good or bad for business?
You might think the above question is an easy one for businesses to
answer? Surely acting ethically makes good business sense? As with all
issues in business studies, there are two sides to every argument:
The advantages of ethical
behaviour
The disadvantages of ethical
behaviour
Higher revenues – demand from
positive consumer support
Higher costs – e.g. sourcing from
Fairtrade suppliers rather than lowest
price
Improved brand and business
awareness
Higher overheads – e.g. training &
communication of ethical policy
Better employee motivation and
recruitment
A danger of building up false
expectations – promises they cant
keep
New sources of finance – e.g. from
ethical investors

15. +
Externalities: the social costs and
benefits of business activity
Business activity incurs social costs and benefits that have an impact
outside businesses themselves. These are called external costs, or
externalities. Typical external costs of business activities include:
Destruction of
the countryside
such as
chemicals,
waste, buildings
and new roads
Increase in
global
warming –
cutting trees
and burning
coal
Pollution from
smoke, traffic,
chemicals and
noise
Disturbance of
people living close
to the new
motorway
Destruction of
wildlife and its
habitat
Social factors
such as
unemployment
and loss of
amenities
when a factory
closes

16. +
Externalities: the social costs and
benefits of business activity
External benefits include:
Increased employment
from the expansion on
business e.g. new
factories
Increased training
of a local
workforce, making
the workforce more
adaptable
Improved
amenities and
living standards
such as new
schools and
roads
Economic
regeneration of
an area if new
businesses move
in

17. +
Business in context

See worksheet

18. +
Activity 4.1
Make a list of the external benefits and costs of producing and
using coal. Do you think that the benefits outweigh the costs, or
not? Justify your answer.

19. +
Dealing with external costs
Internationalisation
Government action
External costs
Pressure groups
Private action

20. +
Internationalisation
Internationalisation, where a supplier accepts responsibility for
the external cost and absorbs the cost of putting it right. For
example, a construction company building a new road may pay
the costs of excavating, removing and restoring an
archaeological site in a new location.

21. +
Pressure groups
Pressure groups, such as Greenpeace International which
operates throughout Asia, Africa, Europe, the Americas and the
Pacific to protect and conserve the environment, can demand
that governments and private firms take externalities into account
which projects such as a nuclear generating station.

22. +
Private action
Private action by firms or individuals is often intended to improve
their own public image, but may go a long way towards paying for
social costs. Such action may be, for example, a manufacturer
reducing emissions of gasses harmful to the atmosphere. Or
even a football club paying for the policing of the neighbourhood
around its ground when there is a match.

23. +
Government action
Government action that cover externaltities include:

Taxation and subsidies

Introducing a pricing system, such as parking meters and tolls

Direct controls, such as planning controls and licensing

Providing goods and services through the public sector, either
free or subsidised

24. +
Cost-benefit analysis: measuring
social costs and benefits
There is a procedure called cost-benefit analysis that weighs up
the social costs and the benefits of their business activities. The
basic procedure involves:
1.
Identifying all costs and benefits connected to the acitvity
including future costs and benefits
2.
Putting a financial value on the costs and benefits
3.
Comparing the total cost with the total benefit value
If the benefits exceeds the costs then the activity should go
ahead.

25. +
Problems with cost-benefit analysis

Some business activities provide benefits for some consumers
but costs for others

Difficulty to put a value on some social costs or benefits, such
as protecting endangered species

26. +
National wealth, livings standards
and economic growth
The wealth of a country lies in its natural resources or other
productive assets. How efficiently the country uses its natural
resources and other productive assets will determine the
standard of living for those in the country.
The efficiency of a country using its natural resources is
measured by the amount of goods and services that are
produced using them (GNP – gross national product).
An increase in goods and services produced will lead to a higher
quality of living.

27. +
Economic growth and sustainability
To be a lasting benefit, growth must be sustainable. But despite
major advances in technology and communications that have
increased productivity and factors of production, the basic
economic problem remain:

People have potentially unlimited wants

The resources available to satisfy them are limited

As the world population is increases, pressure on these scarce
resources increase with it.

28. +
How they are connected
External
costs
National
wealth
External
benefits
Externalities
Dealing with
external
costs
Impact of
business
activity
Economic
growth
Cost-benefit
analysis
Sustainability

29. +
Activity 4.2
Economic growth is achieved largely through increasing production of goods
and services. Usually, within a country some industries are growing
(increasing production) whilst others may be in decline (decreasing
production).
1.
Identify and research an industry that is increasing its level of
production
2.
Find out why this is happening. For example:

Demand for the product may be growing either in the home market or
abroad.

New technology may be improving production techniques or productivity.

The raw materials from which the product is made may have become
more easily or cheaply available.
Do you think the increase in production is sustainable? Explain your
answer.
3.

30. +
Exemplar exam question

See worksheet

31. +
Key terms

Cost-benefit analysis – a method of comparing the overall costs and
benefits, including social costs and benefits, of a business activity or
project

Economic growth – a measure of how well a country is doing: it is shown
through the GNP of the country

Environmentally friendly – activities that conserve the environment or do
not deplete scarce resources

External costs/externalities – the social costs and benefits of business
activity borne by the wider community

National wealth- the natural resources and other productive assets

Social costs and benefits – costs and benefits to society as a whole rather
than to the business

Sustainability- the likelihood of being able to maintain levels of production

32. +
Summary
1.
Some activities of business are harmful to society or the environment.
2.
These are social costs external to the business.
3.
External costs may be dealt with by internalisation, pressure groups, private
action by firms or individuals, or government action.
4.
Cost-benefit analysis is a method of comparing the total costs and benefits
of a business activity or project, including social costs and benefits.
5.
The wealth of a country lies in its natural resources and other productive
assets.
6.
How efficiently a country uses its natural resources and other productive
assets will determine the general standard of living of those living in the
country.
7.
Economic growth through increasing GNP (gross national product) will
increase the wealth and living standards of a country.
8.
To be of lasting value, growth must be sustainable.