Ethical issues — Edexcel A-Level Economics B
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Ethical issues explained
Ethical issues covers 5 specification points, including a) Stakeholder conflicts and b) Pay and working conditions.
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Open a point below for its explanation and revision guidance.
a) Stakeholder conflicts
Stakeholder conflicts occur when the objectives of different groups associated with a business are incompatible, often driven by ethical issues. Shareholders typically seek profit maximisation, which can conflict with employees demanding higher wages. A firm's desire to minimise costs using environmentally damaging methods conflicts with the local community's interest in a clean environment. Resolving these conflicts requires balancing competing interests through trade-offs. Ethical decision-making might lead a firm to accept lower short-term profits to satisfy consumer demands for fair trade products or to ensure suppliers are treated ethically, thereby avoiding reputational damage and satisfying broader stakeholder needs.
b) Pay and working conditions
Ethical issues surrounding pay and working conditions are central to modern business operations and corporate social responsibility. Businesses must navigate the tension between minimising labour costs to maximise profit and ensuring fair compensation, such as paying a living wage rather than just the legal minimum. Working conditions encompass health and safety, working hours, job security, and the physical environment. For example, a multinational retailer might face ethical scrutiny if its overseas suppliers use sweatshop labour with poor ventilation and excessive hours. Improving pay and conditions can increase costs in the short term but may lead to higher productivity, lower staff turnover, and enhanced brand reputation.
c) Environmental considerations: o emissions o waste disposal
Environmental considerations are a major ethical issue for businesses, focusing on emissions and waste disposal. Emissions refer to the release of greenhouse gases and pollutants, contributing to climate change and air pollution. Waste disposal involves how a business manages its waste, with ethical firms aiming to minimise landfill use through recycling and circular economy practices. For instance, a manufacturing firm might invest in technology to reduce emissions and redesign packaging to be fully biodegradable. While adopting environmentally friendly practices often incurs significant capital expenditure, it can mitigate the risk of regulatory fines, attract eco-conscious consumers, and provide a competitive advantage.
d) Supply chain considerations: o exploitation of labour o child labour
Ethical supply chain management requires businesses to scrutinise suppliers to prevent labour exploitation and child labour. Exploitation occurs when workers face unsafe conditions, excessive hours, or wages below a living standard. Child labour involves employing minors in work that deprives them of education or harms their development. For example, a clothing retailer might face severe reputational damage and boycotts if an audit reveals its overseas factories employ underage workers or force staff to work unpaid overtime. Businesses must balance the drive for lower production costs against the ethical imperative and long-term brand value of ensuring fair labour practices throughout their global supply chain.
e) Marketing considerations: o misleading product labelling o inappropriate promotional activities
Ethical marketing requires businesses to avoid misleading product labelling and inappropriate promotional activities. Misleading labelling occurs when packaging makes false claims about a product's benefits, ingredients, or environmental impact, such as 'greenwashing' to appear eco-friendly. Inappropriate promotional activities involve advertising that is offensive, targets vulnerable groups like children, or promotes harmful behaviours. For example, a fast-food firm advertising high-sugar meals directly to children faces ethical scrutiny. While the Advertising Standards Authority (ASA) cannot impose fines, it can ban adverts and refer cases to Trading Standards, which can levy statutory penalties. Businesses must ensure their marketing strategies build genuine consumer trust rather than relying on deception.
Your focus
- Identify the main stakeholders of a business and their primary objectives.
- Explain how ethical issues can lead to conflicts between different stakeholder groups.
- Analyse the trade-offs businesses face when attempting to resolve stakeholder conflicts.
Show all 15 objectives
- Explain the ethical considerations related to employee pay and working conditions.
- Analyse the impact of ethical labour practices on business costs and revenues.
- Evaluate the trade-offs between profit maximisation and ethical employment practices.
- Define the ethical issues surrounding business emissions and waste disposal.
- Analyse the financial and reputational impacts of adopting environmentally friendly practices.
- Evaluate the extent to which environmental considerations conflict with profit maximisation.
- Define exploitation of labour and child labour in a business context.
- Analyse the impact of unethical supply chain practices on a firm's reputation and sales.
- Evaluate the trade-offs between cost minimisation and ethical sourcing in global supply chains.
- Explain the concept of misleading product labelling and its consequences for a business.
- Identify examples of inappropriate promotional activities and the ethical concerns they raise.
- Evaluate the impact of ethical marketing practices on consumer trust and long-term business performance.
Ethical issues exam tips
Marking Points
- Stakeholder conflicts arise because different groups have divergent objectives, such as shareholders wanting dividends versus employees wanting higher pay.
- Ethical business practices often increase short-term costs, conflicting with the shareholder objective of profit maximisation.
- Consumers increasingly demand ethically sourced products, which can conflict with a firm's desire to use the cheapest available suppliers.
- Local communities may conflict with businesses over negative externalities, such as pollution or noise, generated by production processes.
- Identification of the difference between a legal minimum wage and an ethical living wage.
- Explanation of how poor working conditions, such as unsafe environments or excessive hours, can damage brand reputation.
- Analysis of the trade-off between higher labour costs and improved worker productivity or retention.
- Evaluation of the impact of supply chain ethics on a firm's corporate social responsibility profile.
- Identification of emissions and waste disposal as key environmental ethical issues for businesses.
- Explanation of the negative externalities associated with industrial emissions and improper waste disposal.
- Analysis of the costs involved in implementing greener technologies or sustainable waste management systems.
- Evaluation of the long-term benefits of environmental ethics, such as improved brand loyalty and compliance with future legislation.
- Identify exploitation of labour as paying below subsistence wages or providing unsafe working conditions.
- Define child labour as the employment of children in an industry or business, especially when illegal or considered exploitative.
- Explain that unethical supply chain practices can lead to significant reputational damage and loss of consumer trust.
- Evaluate the trade-off between minimising supply chain costs and maintaining ethical labour standards.
- Identify misleading product labelling as providing false or deceptive information regarding a product's characteristics or origins.
- Define inappropriate promotional activities as marketing that offends public taste, targets vulnerable demographics, or encourages unsafe behaviour.
- Explain how unethical marketing can lead to adverts being banned by the Advertising Standards Authority (ASA) and referrals to Trading Standards or Ofcom for statutory fines.
- Evaluate the impact of deceptive marketing on long-term brand equity and consumer loyalty.
Examiner Tips
- 💡Always identify the specific stakeholders involved in a conflict and clearly state their opposing objectives.
- 💡Use examples of ethical issues, such as environmental damage or poor working conditions, to illustrate why stakeholder conflicts occur.
- 💡Discuss how resolving stakeholder conflicts often involves trade-offs, where satisfying one group requires compromising the objectives of another.
- 💡Always link ethical pay and conditions to potential business impacts, such as brand image, staff turnover, or consumer boycotts.
- 💡Use the concept of trade-offs when discussing the costs of improving working conditions versus the long-term benefits.
- 💡When evaluating, consider the perspective of different stakeholders, such as employees, shareholders, and consumers.
- 💡Use the concept of negative externalities when discussing the impact of emissions and waste on third parties.
- 💡Contrast the short-term costs of environmental compliance with the long-term benefits of sustainability.
- 💡Apply real-world examples of businesses changing their waste disposal methods, such as moving away from single-use plastics.
- 💡Use real-world examples of multinational companies facing backlash over supply chain ethics to illustrate your points.
- 💡When evaluating, contrast the short-term cost savings of cheap labour with the long-term financial risks of reputational damage.
- 💡Read case study data carefully to identify whether the ethical issue stems from direct operations or a tier-two supplier.
- 💡Look for clues in the stimulus material about target audiences to identify inappropriate promotional activities.
- 💡Discuss the role of regulatory bodies like the ASA in banning ads and referring cases to Trading Standards when evaluating the consequences of misleading labelling.
- 💡Contrast the short-term revenue gains of deceptive marketing with the long-term costs of lost consumer trust and legal penalties.
Common Mistakes
- Confusing stakeholders with shareholders; correction: shareholders are just one type of stakeholder who own the business, whereas stakeholders include anyone affected by the business.
- Assuming ethical behaviour always reduces long-term profits; correction: while short-term costs may rise, ethical behaviour can enhance brand loyalty and long-term profitability.
- Believing all stakeholders have equal power; correction: stakeholder power varies significantly, and businesses often prioritise those with the most influence, such as major shareholders.
- Confusing legal requirements with ethical behaviour; correction: ethics often go beyond legal minimums, such as paying a living wage instead of just the statutory minimum wage.
- Assuming higher pay always reduces overall profitability; correction: higher pay can increase profitability through improved motivation, higher productivity, and lower recruitment costs.
- Ignoring the supply chain; correction: businesses are held ethically responsible for the pay and conditions of their suppliers' workers, not just their direct employees.
- Treating environmental ethics as cost-free; correction: acknowledge that reducing emissions and improving waste disposal usually require significant short-term investment.
- Confusing emissions with waste disposal; correction: emissions typically refer to airborne pollutants and greenhouse gases, whereas waste disposal usually refers to solid or liquid physical waste.
- Assuming consumers always pay a premium for ethical products; correction: while some consumers are eco-conscious, price elasticity of demand often limits how much extra they will pay.
- Assuming exploitation only refers to child labour; correction: exploitation also includes adult workers facing poor conditions, low pay, or forced overtime.
- Believing businesses are only responsible for their direct employees; correction: businesses are increasingly held accountable for the ethical standards of their entire supply chain, including third-party suppliers.
- Thinking ethical supply chains always reduce profitability; correction: while costs may rise, ethical practices can enhance brand loyalty, allow for premium pricing, and reduce the risk of costly scandals.
- Confusing puffery (exaggerated praise) with misleading labelling; correction: puffery is legal subjective exaggeration, whereas misleading labelling involves objectively false factual claims.
- Assuming inappropriate promotion only means offensive content; correction: it also includes targeting vulnerable groups, such as advertising junk food to young children.
- Believing that the ASA can directly fine businesses; correction: the ASA is a self-regulatory body that can ban ads, but statutory fines are issued by bodies like Trading Standards or Ofcom.