1. How can business be affected by making production environmentally friendly?

Making production environment friendly could:
   •    Add to the costs of a business,which might reduce the amount of profit it makes.
   •    Be good for public relations by giving a business a positive image that could boost its reputation and lead to further sales.
   •    Result in new business opportunities for businesses as,increasingly,consumers look for more environmentally friendly products.
   •    Lead to the development of new environmentally friendly production techniques which can help reduce wastage,so cutting costs for businesses.

2. Why is it important for all businesses to be aware that issues in their external environment will affect them?

The external environment of a business is very dynamic.The demands of all of its stakeholders changes often.If a business cannot adapt,or respond,to the changing demands of its customers,it risks losing both current and potential new customers.So it is important for all businesses to be aware that issues in their external environment will affect them.

3. What are external costs of a business?

Business activity incurs social costs that have an impact outside businesses themselves.These are called external costs or externalities.External costs are paid by those people who are affected by the new project or other decisions taken by businesses.These are costs borne by society around the business.They might consist of air,noise, and water pollution which is  harmful to the health of residents,loss of green land,harm to the environment and congestion of towns and cities.These problems are referred to as negative externalities.

4. Name a few external costs of business activities.

Typical external costs of business activities include:
   •    Environmental factors such as pollution from smoke, noise and chemicals.
   •    Spoiling the environment with buildings such as factories or the construction of roads.
   •    Damage from traffic through higher risk of accidents and congestion.
   •    The destruction of natural habitats of wild life and flowers.
   •    Endangering species of wildlife.
   •    An increase in global warming by cutting down forests and burining coal.
   •    Social factors such as unemployment and loss of amenity when a factory or business closes.

5. What are social / external benefits of a business?

A social benefit is where a business action leads to benefits above and beyond the direct benefits to the business and/or customer.For example,the building of an attractive new factory provides employment opportunities to the local community.Governments encourage social benefits through the use of subsidies and grants (Example: regional assistance for undeveloped areas).They also discourage social costs with fines,taxes and legislation.

6. Cite a few examples of external benefits of business.

External benefits of business include:
  •    Increased employment from the expansion of businesses.
  •    The economic regeneration of an area if new businesses move in.
  •    Increased training of a local workforce,making the workforce more adaptable.
  •    Improved amenities and living standards,for example,new roads and schools.

7. How can external cost be dealt with?

External costs can be dealt with in several ways:

  •    Internalization,where the supplier accepts responsibility for the external costs and absorbs the cost of putting it right.
  •    Pressure groups such as Greenpeace International which operates across Asia,Africa,Europe etc to protect and conserve the environment,can demand the governments and private firms take externalities into account when contemplating a major project such as a nuclear generating station.
  •    Private action by firms or individuals is often intended to improve their own public image,but may go a long way towards paying for social costs.
  •    Government actions.

8. What are the actions from the part of the government to cover externalities?

Government action to cover externalities includes:
  •    Taxation and subsidies.
  •    Introducing a pricing system,such as parking meters and tolls.
  •    Direct controls,such as planning controls and licensing.
  •    Providing goods and services through the public sector,either free or at subsidized rates.

9. Explain the procedure involved in cost benefit analysis to weigh up the social costs and benefits of a business.

Many businesses use a procedure known as cost- benefit analysis to weigh up the social costs and benefits of their activities.The basic procedure involves:
  •    Identifying all costs and benefits connected with an activity or project, including future costs and benefits.
  •    Comparing the total cost with the total benefit value.If the total value of benefits exceeds the costs of activity or project,the business should continue.If the costs exceed the value of benefits,the activity or project should be cancelled,at least for the present.

10. What are the problems with cost–benefit analysis of a business activity?

While cost-benefit analysis is helpful in making decisions about the overall costs and benefits of business activity,it does have problems such as:
  •    Some business activities provide benefits for some consumers but costs for others.
  •    It is often difficult to put a value on some social costs or benefits,such as protecting a species of wildlife.

11. What do you mean by sustainable growth of a business?

Sustainable growth is the realistically attainable growth that a company could maintain without running into problems.A business that grows too quickly may find it difficult to fund the growth.A business that grows too slowly or not at all may stagnate.Finding the optimum growth rate is the goal.A sustainable growth rate (SGR) is the maximum growth rate that a company can sustain without having to increase financial leverage.