AQA GCSE Business: Ethical and environmental considerations and The economic climate on businesses (8132) – Revision Notes

These notes condense sections 3.2.2 and 3.2.3 of the AQA GCSE Business (8132) specification, for first teaching from September 2017. For full explanations and worked examples, read the study guide. Then test yourself with the practice questions. Other links: course hub, printable checklist, free diagnostics, technology and ethics revision notes.

Key terms

Term	Meaning (as the specification uses it, or in general terms where stated)
Ethical behaviour	Acting in ways stakeholders consider both fair and honest (specification)
Trade off	Giving up some of one thing (such as profit) to gain another (such as reputation)
Environmental considerations	Traffic congestion, recycling, disposing of waste, noise and air pollution (specification list)
Sustainability	Global warming and using scarce resources (specification list); in general terms, meeting today’s needs without harming the future
Interest rate	The cost of borrowing, and the reward for saving
Level of employment	How many people in the economy have jobs
Consumer spending	What households spend on goods and services

Ethics: the quick version

• Test: fair and honest, judged by stakeholders.
• Examples: fair prices to suppliers, honest advertising, fair pay and safe conditions, fair treatment of customers.
• Benefits: reputation, loyalty, easier recruitment, steadier supplier relations.
• Drawbacks: higher costs, higher prices, lower short-run profit.
• Trade off: ethics cost money, but may protect sales.

Method for a trade-off answer

1. Name the ethical action.
2. State the cost, using any figures.
3. State the benefit, and who gains.
4. Reach a judgement that depends on the business and its customers.

Environmental considerations

Area	One responsible action	One cost	One benefit
Traffic congestion	Off-peak deliveries	Less flexibility	Fewer complaints
Recycling	Sort and reuse waste	Bins and time	Lower disposal bills
Disposing of waste	Reduce packaging	Redesign cost	Lower waste charges
Noise pollution	Quieter machinery	Equipment cost	Better local relations
Air pollution	Cleaner vehicles	Purchase cost	Improved reputation

• Businesses take responsibility by changing products, packaging, delivery and energy use.
• Consumers take responsibility by choosing low-waste products, recycling, repairing and sharing journeys.
• Link: if consumers shift, businesses that do not change risk losing sales.

Sustainability

Area	What a business can do	Short-term effect	Long-term effect
Global warming	Cut energy use, change energy source, cut transport emissions	Cost of change	Lower bills, customer support
Using scarce resources	Use less, reuse, switch material	May cost more now	Protects against rising input costs

Trade-off: sustainability can lower profit now and protect it later. Judge by how long the owners can wait and how much cash they have.

Interest rates: cause-and-effect chains

If the rate	Borrowers	Spending	Business effect
Rises	Pay more on loans and overdrafts	Households and firms spend and invest less	Profit and cash flow squeezed; credit-based sales fall
Falls	Pay less	Spending and investment easier	Profit and cash flow helped; more sales on credit

Not required: why interest rates change.

Calculating the effect of a rate change

1. Interest = amount borrowed × rate.
2. Work out interest at the old rate and at the new rate.
3. Subtract to find the extra cost, and divide by 12 for a monthly figure.
4. Compare the extra cost with profit.

Level of employment

If employment	Household incomes	Demand	Recruitment and pay
Rises	Up	Up	Harder to recruit, pay may rise
Falls	Down	Down	Easier to recruit, less pay pressure

Always give the how and the why.

Consumer spending and income

• Income up: spending up, especially on non-essentials and expensive items.
• Income down: spending down, with basics falling least.
• Responses: change prices, range or promotion; adjust production and stock.

Functional areas to link to

Area	Example link
Business operations	Cleaner production, changed output levels
Human resources	Recruitment harder in high employment, ethical treatment of staff
Marketing	Reputation for ethics, price changes when incomes fall
Finance	Higher loan interest, cost of recycling schemes

Must-know distinctions

• Ethical is about fair and honest behaviour. Environmental and sustainability issues are separate lists in the specification.
• Environmental considerations are mostly local, immediate effects. Sustainability is global warming and scarce resources.
• Borrowers lose from a rate rise; savers gain.
• Employment affects incomes and demand; interest rates affect borrowing and spending.

Command words and how to answer

Command word	What to do	Shape of a good answer
State, identify	Give the point briefly	One short statement
Define	Say what the term means	Meaning plus, if useful, a short example
Calculate	Show working and units	Formula, substitution, answer with £ or %
Explain	Give a point and a reason	Point, because, so what
Analyse	Follow a chain of cause and effect	Action, effect, consequence for the business
Evaluate, justify	Weigh both sides and decide	Reasons for, reasons against, judgement with a reason

For evaluate and justify questions, the judgement must come from the evidence in the case: the size of the cost, how long the business can wait for a benefit, what its customers care about and what its competitors do.

Small worked reminders

Ethics and cost. A business buys 8,000 units a year. A fair-trade supplier charges 25p more per unit. Extra cost: 8,000 × 25p = £2,000 a year. If annual profit is £8,000, that is a quarter of it (2,000 ÷ 8,000 × 100 = 25%). The business then decides whether a better reputation, or a small price rise, can recover that £2,000.

Environmental payback. A recycling scheme costs £6,000 to set up and saves £2,000 a year after running costs. Payback is £6,000 ÷ £2,000 = 3 years. A short payback makes the scheme easier to justify. A long one makes it a bigger risk for a small business with little cash.

Interest and demand together. A rise in rates can hit a business twice: its own interest bill goes up, and customers who borrow buy less. Mention both when the question gives you a business that sells big-ticket items.

Employment and spending together. When employment falls, a business may lose sales and find recruiting easier at the same time. Say both effects, then say which matters more for the business in the question, for example a shop selling luxury goods or a firm hiring skilled staff.

Judgement phrases that work

• “This is worthwhile if the business can afford the cost now, because the benefit builds over time.”
• “The impact depends on how many of its customers care about this issue.”
• “For a small business with limited cash, the higher cost carries more risk.”
• “Overall, the most important factor is …, because …”

Quick self-test

1. Define ethical behaviour.
2. State two environmental considerations named in the specification.
3. A business has a £50,000 loan. The rate rises from 3% to 5%. Calculate the extra interest a year.
4. A business has an £8,000 overdraft. The rate falls from 12% to 9%. Calculate the yearly saving.
5. A supplier raises the price of a part from 40p to 46p. Calculate the percentage increase, and the extra cost on 10,000 parts.
6. Give one benefit and one drawback of behaving ethically.
7. State the two sustainability areas named in the specification.
8. Explain one way a fall in the level of employment could affect a shop’s sales.
9. Explain why a rise in interest rates could reduce a builder’s sales.
10. A £200,000 loan carries 4% interest. Calculate the yearly interest, then the interest if the rate rises to 5.5%.

Answers

1. Acting in ways stakeholders consider both fair and honest.
2. Any two of: traffic congestion, recycling, disposing of waste, noise and air pollution.
3. £50,000 × 3% = £1,500; £50,000 × 5% = £2,500; extra = £1,000.
4. £8,000 × 12% = £960; £8,000 × 9% = £720; saving = £240.
5. Increase 6p ÷ 40p × 100 = 15%. Extra cost 10,000 × 6p = £600.
6. Benefit: better reputation or loyalty. Drawback: higher costs or lower short-run profit.
7. Global warming and using scarce resources.
8. Fewer people have wages, so household incomes fall and customers buy fewer non-essential items, which lowers sales.
9. Borrowing for building work costs more, so households and firms delay projects, which lowers demand.
10. £200,000 × 4% = £8,000. At 5.5%, £11,000, so £3,000 more.

Where marks are usually lost

• Describing an ethical or environmental action with only benefits, or only costs, so there is no trade off.
• Writing a judgement that repeats the question rather than using the business in the case.
• Confusing what interest does to borrowers and savers.
• Explaining why interest rates change, which is not required.
• Stating “unemployment is bad” without linking it to incomes, demand and sales.
• Giving a calculation answer without a working line or without the correct units (£ or %).
• Naming a stakeholder group without saying how it is affected.
• Treating recycling and sustainability as the same item.
• Missing the link to a functional area when the question names one.

Frequently asked questions

What are the environmental considerations in AQA GCSE Business (8132)? The specification names traffic congestion, recycling, disposing of waste, noise pollution and air pollution.

What is the difference between environmental considerations and sustainability? Environmental considerations are mostly local, immediate effects such as noise or traffic. Sustainability is a global, long-term issue, which the specification lists as global warming and using scarce resources.

How does a rise in interest rates affect a business? It can hit a business twice: its own interest payments on loans and overdrafts rise, and customers who borrow to buy spend less, so profit and cash flow are squeezed.

How does the level of employment affect businesses? When employment rises, household incomes and demand go up but recruiting becomes harder and pay may rise. When it falls, incomes and demand fall, especially for non-essentials.

Official syllabus

AQA GCSE Business (8132) specification, for first teaching from September 2017, published by AQA. Sections 3.2.2 and 3.2.3.