O Level Business: Environmental and ethical issues and Business and the international economy (Cambridge 7115) – Revision Notes

These notes condense sections 6.2 (Environmental and ethical issues) and 6.3 (Business and the international economy) of the Cambridge O Level Business Studies 7115 syllabus for examination in 2026. For full explanations and worked examples, read the study guide. Then test yourself with the practice questions.

Other links: Cambridge O Level Business hub, printable checklist, mixed external influences practice and the free diagnostics.

Key definitions

Term	Meaning
Externality	A cost or benefit of a business decision that falls on people outside the business and its customers
External cost	A cost to third parties, for example pollution that harms local health
External benefit	A gain to third parties, for example jobs and better roads in the area
Private cost	A cost the business itself pays, such as wages and materials
Sustainable development	Meeting the needs of today without reducing the ability of future generations to meet theirs
Pressure group	A group that tries to influence business or government decisions on a cause
Legal controls	Rules set by government that limit what businesses may do, for example pollution controls
Ethical issue	A question of right and wrong in business behaviour
Globalisation	Growing links between countries in trade, finance and ideas
Import tariff	A tax on imported goods
Import quota	A limit on the quantity of a good that may be imported
Multinational company (MNC)	A business that operates in more than one country
Repatriation of profits	Sending profits back to the home country of the MNC
Appreciation	A currency buys more foreign currency
Depreciation	A currency buys less foreign currency

6.2.1 Environment and ethics at a glance

How business harms and helps the environment

• Harm: global warming from burning fossil fuels, air and water pollution, noise, waste, loss of habitats, use of non-renewable resources.
• Help: renewable energy, recycling, less packaging, longer-lasting products, local sourcing.

Externalities: spot the difference

• The test: who pays or gains? If it is someone outside the business and its customers, it is external.
• A factory’s higher wage bill is private. A river polluted by the factory is an external cost.
• Do not credit the business with its own sales or profit as an external benefit.

Sustainable development: ways a business can contribute

1. Switch to renewable energy.
2. Cut waste and recycle materials.
3. Use resources from managed sources.
4. Design products to be repaired, not thrown away.
5. Reduce transport distances.

Responding to pressure and opportunity

Reason to respond	Cost or limit of responding
Avoid lost sales from boycotts or bad publicity	New equipment and training
Meet customer demand for green products	Higher input costs
Follow the law and avoid fines	May raise prices against rivals
Attract staff and investors	Benefits may take time to appear

Pressure group methods: publicity, petitions, protests, calls for boycotts, lobbying government.

Legal controls

• Purpose: stop harm and set the same minimum standard for all.
• Business effect: higher costs, but fewer fines and a better reputation.
• Keep descriptions general. Say “a pollution control” and explain what it does; do not make up the name of a law.

Profit versus ethics

Issue	Profit-first choice	Ethical response
Child labour	Cheapest supplier, no checks	Audit suppliers, stop buying where it is found
Supplier prices	Squeeze the price down	Pay a fair price for a stable supply
Honest information	Overstate product claims	Tell the truth, accept lower short-term sales

Judgement tip: an ethical choice often costs money now but can protect the brand, supply and customer trust.

6.3.1 Globalisation

• Causes: cheaper transport, faster communication, lower trade barriers, growth of MNCs.
• Opportunities: bigger markets, cheaper inputs, spread of risk.
• Threats: more competition, lost home sales to cheap imports, need to adapt to local tastes.

Tariff versus quota

	Tariff	Quota
What it is	Tax on imports	Limit on quantity imported
Effect on price	Imports cost more	Imports become scarce, so prices may rise
Government gain	Raises tax revenue	None directly
Why used	Protect local firms and jobs, protect new industries, raise money	Protect local firms and jobs

Price with a percentage tariff = import price × (1 + tariff rate). Example: a 25% tariff on a Rs 800 item gives 800 × 1.25 = Rs 1,000.

6.3.2 Multinationals

• Why they grow: new markets, lower costs, avoid tariffs by producing locally, spread risk, economies of scale.
• Stakeholders: shareholders may gain; home workers may lose jobs; host-country workers gain jobs; local suppliers gain contracts.

Host country gains	Host country loses
Jobs	Local businesses lose sales
Exports	Repatriated profits
More choice	Pollution or poor conditions possible
Investment	Jobs can leave quickly

Method in steps for a host-country question:

1. State the effect (job, export, choice, investment, lost sales, repatriation).
2. Link it to the case study.
3. Say who is affected.
4. For evaluate, say which effect is larger and why.

6.3.3 Exchange rates

Home currency	Exporter	Importer
Appreciates	Foreign price rises, less competitive	Inputs cheaper, costs fall
Depreciates	Foreign price falls, more competitive	Inputs dearer, costs rise

Exchange rate calculations are not assessed, so learn the direction of each effect and the reason.

Worked reminders

Ethics and profit with numbers

A garment maker buys 40,000 shirts a year from a supplier at Rs 450 each and earns Rs 3,600,000 profit. The supplier asks for Rs 495 so that it can pay fair wages.

• Rise: 45/450 = 10%.
• Extra cost: 40,000 × 45 = Rs 1,800,000.
• Profit falls to Rs 1,800,000, which is a fall of 50%.

Use figures like these to support a judgement: the firm could cover the extra cost with a price rise of Rs 45 per shirt, which is 6% of an average selling price of Rs 750.

Payback on a green investment

A new boiler costs Rs 420,000 and cuts a Rs 2,500,000 energy bill by 12%. The yearly saving is Rs 300,000, so the cost is recovered in 420,000/300,000 = 1.4 years. That supports the case for acting, though an answer should also mention the cash needed at the start.

Case-study skills for this topic

• Application: use the name of the business, product and place from the stimulus in each sentence.
• Analysis: build a chain of reasoning, for example new filter, higher cost, lower profit, but fewer fines and better image.
• Evaluation: weigh both sides, say which matters more in this case and why. Short-term cost against long-term reputation is a common line of judgement.
• Command words: state and identify need a short answer; explain and analyse need a developed chain; evaluate, justify and recommend need a reasoned decision.

Quick exchange-rate cues

1. Ask which direction the currency moved.
2. Decide whether the business sells abroad (exporter), buys abroad (importer) or both.
3. Say what happens to prices, competitiveness and profitability.
4. Mention one thing the business can do, such as changing supplier or adjusting prices.

Must-know distinctions

• External cost or benefit versus private cost or benefit.
• Tariff (tax) versus quota (limit).
• Appreciation versus depreciation.
• Benefit to the MNC versus benefit to the host country.
• Legal duty (must do) versus ethical choice (ought to do).

Quick self-test

1. State what an externality is.
2. A town gains 60 jobs from a new brewery. Is this an external or private benefit?
3. Give one way a business can contribute to sustainable development.
4. Name two methods a pressure group could use.
5. A 25% tariff is placed on an imported item priced at Rs 800. What is the new price?
6. Why might a government choose a quota rather than a tariff?
7. Explain repatriation of profits.
8. A country’s currency depreciates. State the likely effect on its exporters.
9. A buyer pays 15% more to growers, raising the price from Rs 120 to what per kg?
10. Give one reason a business might refuse to use a cheaper supplier that employs children.

Answers

1. A cost or benefit to people who are not part of the business or its customers.
2. External benefit, because it gains people outside the business.
3. Any one: renewable energy, recycling, reducing waste, sustainably sourced materials.
4. Any two: publicity campaigns, petitions, protests, calling for a boycott, lobbying the government.
5. Rs 1,000 (800 × 1.25).
6. It sets a firm limit on quantity, which protects local firms by capping imports, though it raises no tax revenue.
7. Profits earned in a host country are sent back to the MNC’s home country, not reinvested locally.
8. Its goods become cheaper abroad, so export sales may rise.
9. Rs 138 (120 × 1.15).
10. To protect its reputation, avoid boycotts and act ethically.

Where marks are usually lost

• Giving a cost to the business itself when asked for an external cost.
• Confusing a tariff with a quota, or calling a quota a tax.
• Describing what a pressure group wants, not the method it uses.
• Reversing appreciation and depreciation in an exchange-rate answer.
• Listing MNC effects without linking them to the host country in the case.
• Writing a one-sided answer to an “evaluate” or “justify” question.
• Inventing named laws instead of describing the legal control in general terms.
• Naming an ethical issue but not giving a business response.

Frequently asked questions

What is the difference between an import tariff and an import quota? An import tariff is a tax on imported goods, which raises their price. An import quota is a limit on the quantity of a good that may be imported.

What is the difference between an external cost and an external benefit? An external cost is borne by third parties, such as smoke harming the health of people nearby. An external benefit is a gain to third parties, such as local jobs created when a new factory attracts shops and cafes.

What is the difference between appreciation and depreciation of a currency? Appreciation means a currency buys more foreign currency, while depreciation means it buys less. Reversing the two is the usual way to lose all the marks on an exchange-rate question.

What is repatriation of profits? Repatriation of profits means a multinational sends profits back to its home country instead of reinvesting them where they were earned.

Official syllabus

Cambridge O Level Business Studies 7115, syllabus for examination in 2026, Cambridge University Press and Assessment (Cambridge International Education).