Ethical considerations Students should be able to identify and analyse…

The idea

Ethical considerations are the moral principles a business uses when deciding how to act. Acting ethically can raise costs: fair pay, safe conditions, sustainable materials or animal welfare may reduce profit in the short term. A trade-off exists when improving one objective worsens another, so a business may accept lower profit to behave ethically, or accept ethical criticism to protect profit. For example, a clothing retailer switching to organic cotton may pay more per metre, raising unit cost and lowering gross profit margin, but may gain sales from ethically minded customers. Analysis weighs short-term profit loss against long-term reputation, customer loyalty and legal risk.

What earns the marks

• Defines ethical considerations as moral principles guiding business decisions, such as fairness, honesty and avoiding harm.
• Identifies a specific trade-off: an ethical action, such as paying above the minimum wage, increases costs and can reduce short-term profit.
• Analyses the trade-off by explaining consequences for the business, for example lower profit margin but improved reputation and customer loyalty.
• Uses a stakeholder perspective, showing that employees, customers, suppliers or local communities may gain while shareholders may lose short-term returns.
• Applies a business example, such as a café buying Fairtrade coffee at a higher price per kilogram and deciding whether to absorb the cost or raise prices.
• Evaluates the balance between ethics and profit, recognising that the outcome depends on customer response, cost size and time period.

Common mistakes and how to put them right

• Treating ethics and profit as always opposed.

  Put it right: Explain that ethical behaviour can raise long-term profit through reputation and repeat custom.

• Listing ethical actions without analysing the trade-off.

  Put it right: Link each action to a cost, benefit and effect on profit.

• Ignoring stakeholders; correction: state who gains and who loses, such as employees gaining fair pay while owners receive lower dividends.

• Assuming all customers will pay more for ethical products.

  Put it right: Analyse demand sensitivity and the risk of losing price-sensitive customers.

Exam tips

• Use the command word: for identify, state the ethical issue and the profit effect; for analyse, develop a chain of cause and effect.
• Anchor answers in a named business or product so the trade-off is concrete rather than abstract.
• Refer to both short-term and long-term effects to show balanced analysis.
• Use business terms such as cost, revenue, profit margin, reputation and stakeholder to raise the quality of response.