Component 3: Ethical, legal and environmental factors – Legal — Eduqas A-Level Business
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Component 3: Ethical, legal and environmental factors – Legal explained
Eight areas, and the paper asks what each does to a cost, a risk or a decision, never which statute it came from.
Read the full explanation
Company rules govern incorporation and limited liability, so they decide whether an owner personal assets are exposed and what accounts must be published. Employment and equality rules set contracts, notice, unfair dismissal and protected characteristics. Consumer rules require goods to be as described and of satisfactory quality. Competition policy, enforced by the Competition and Markets Authority, blocks cartels, price fixing and mergers that would harm buyers. Safety rules require risk assessment and training. Data rules control how customer information is collected, stored and shared, with fines scaled to global turnover. Patents, trademarks and copyright protect an innovation and can be licensed for income. Minimum wage sets an hourly floor that varies by age.
Evaluate the impact of legislation on businesses and their stakeholders
Law is the constraint half of the external environment and it bites in three ways: cost, time and structure. A rise in the minimum wage lifts variable cost per unit for a labour intensive firm, which raises break even output, fixed costs divided by contribution per unit. Safety and data rules add fixed compliance cost that a small firm cannot spread over enough volume, while a competition ruling can force a merger to be abandoned or a division to be sold. The gains land elsewhere, with employees, consumers and the community, so this is a question about who gets what rather than a simple cost. Strong answers size the burden against revenue, note that the same rules bind rivals so relative competitiveness may be unchanged, and separate a firm that can pass the cost on because demand is price inelastic from one that cannot.
Your focus
- Explain the main laws that concern businesses, including company law, employment and anti-discrimination law, consumer protection, competition policy, health and safety legislation, data protection, intellectual property and minimum wage (learners are not expected to have detailed knowledge of specific Acts of Parliament)
- Evaluate the impact of legislation on businesses and their stakeholders
Component 3: Ethical, legal and environmental factors – Legal exam tips
Marking Points
- Names the relevant area of law for the situation described and states what it obliges the firm to do.
- Converts each rule into a business consequence, a compliance cost, a fine, a delay, or the protection of an asset.
- Knows that intellectual property is an asset that can be licensed or sold, not merely a restriction on behaviour.
- Spends the words on application rather than on Act names and dates, which the specification says are not required.
- Sizes the burden where the data allows, for example a wage rise as a percentage of the wage bill or of revenue, rather than calling it significant.
- Notes that the rules apply to competitors too, so the relative position may be unchanged, and that compliance cost can raise barriers to entry.
- Splits the effect by group, the firm, its employees, its customers, its suppliers and the government.
- Uses price elasticity of demand to judge whether the extra cost can be passed on in a higher price.
- Reaches a conclusion that turns on firm size, sector or market position rather than a general statement about regulation.
Examiner Tips
- 💡Questions on this content are usually low tariff, so one sentence of law and one of consequence is the efficient shape for each mark.
- 💡In a longer answer legislation is one external factor among several, so signpost it as the legal element of PEST or as a constraint on the strategy under discussion.
- 💡This is typically the highest tariff essay in the external environment section, so give roughly a third of your time to the plan and the conclusion.
- 💡Legislation combines well with the other external factors, so one line linking a legal change to an economic one such as inflation or a rate rise shows the synthesis examiners reward.
Common Mistakes
- Reciting statute names and years, usually inaccurately, instead of explaining the effect on the named firm.
- Confusing competition policy with consumer protection; the first deals with market structure, cartels and mergers, the second with the rights of an individual buyer.
- Treating minimum wage as one flat rate, when it varies by age band and is uprated each year, which changes the size of the cost for a firm employing young staff.
- Assuming all regulation harms business, missing that consumer confidence, safer workplaces with lower absence, and protection from cartels are commercial benefits.
- Failing to separate a one off compliance cost from a permanent increase in cost per unit, which matters because only the second changes break even output for good.
- Describing what the law says instead of judging what it does, which holds the answer in the knowledge band.