Chap 009

Chapter 09 - Business the Environment and Sustainability

Chapter 09 Business the Environment and Sustainability True/False Questions

1. (p. 372) The trend of sustainable businesses and sustainable economic development has shifted towards the Triple Bottom Line approach in recent times. TRUE

Sustainable business and sustainable economic development seek to create new ways of doing business in which business success is measured in terms of economic, ethical, and environmental sustainability, often called the Triple Bottom Line approach.

AACSB: 1 BT: Knowledge Difficulty: Easy Learning Objective: 1

2. (p. 374) The natural world, like capital, had the productive capacity to produce long-term income but only if used prudently. TRUE

The natural world, like capital, had the productive capacity to produce long-term income but only if used prudently.

Difficulty: Easy

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3. (p. 374) The conservation movement values the natural world as a resource, providing humans with both direct and indirect benefits. TRUE

From conservation movement' perspective, the natural world was still valued as a resource, providing humans with both direct benefits (air, water, food), and indirect benefits (the goods and services produced by business).

AACSB: 1 BT: Knowledge Difficulty: Medium Learning Objective: 1

4. (p. 375 – 376) From the utilitarian view point, raising and slaughtering animals for food is ethically wrong. FALSE

From the utilitarian view point, acts that inflict unnecessary pain on animals are ethically wrong.

AACSB: 2 BT: Knowledge Difficulty: Easy Learning Objective: 1

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5. (p. 377) Defenders of the market approach contend that environmental problems are economic problems that deserve economic solutions. TRUE

Defenders of the market approach contend that environmental problems are economic problems that deserve economic solutions.

AACSB: 2 BT: Knowledge Difficulty: Medium Learning Objective: 3

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6. (p. 377) William Baxter has argued for a ‘natural' or ‘objective' standard for clean air and/ or water. FALSE

Denying that there is any "natural" or objective standard for clean air or water (as this view would deny there is an objective state of perfect health), Baxter begins with a goal of "safe" air and water quality, and translates this goal to a matter of balancing risks and benefits.

AACSB: 3 BT: Knowledge Difficulty: Medium Learning Objective: 3

7. (p. 377) In economic terms, all resources can be stated to infinite. TRUE

The free market also provides an answer for resource conservation. From a strict market economic perspective, resources are "infinite." In economic terms, all resources are "fungible." They can be replaced by substitutes, and in this sense resources are infinite.

AACSB: 3 BT: Knowledge Difficulty: Medium Learning Objective: 3

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Chapter 09 - Business the Environment and Sustainability

8. (p. 378) Internalizing external costs and assigning property rights to unowned goods are responses to market failures. TRUE

Internalizing external costs and assigning property rights to unowned goods such as wild species are two responses to market failures.

AACSB: 2, 3 BT: Knowledge Difficulty: Medium Learning Objective: 4

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9. (p. 380) A ‘first generation' approach is ill advised when public policy involves irreplaceable public goods. TRUE

We learn about market failures and thereby prevent harms in the future only by sacrificing the "first generation" as a means of gaining this information. When public policy involves irreplaceable public goods such as endangered species, rare wilderness areas, and public health and safety, such a reactionary strategy is ill advised.

AACSB: 2 BT: Knowledge Difficulty: Easy Learning Objective: 4

10. (p. 381) Before the introduction of environmental legislation, the primary legal avenue open for addressing environmental concerns was contractual law. FALSE

Before the passage of environmental legislation, the primary legal avenue open for addressing environmental concerns was tort law.

AACSB: 2, 3 BT: Knowledge Difficulty: Hard Learning Objective: 2

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Chapter 09 - Business the Environment and Sustainability

11. (p. 382) Norman Bowie's philosophy that businesses were not obligated to practice environmental responsibility underestimates the influence that businesses have in establishing the law. TRUE

Bowie argued that, apart from the duties to cause no avoidable harm to humans and to obey the law, business has no special environmental responsibility. Business may voluntarily choose to do environmental good, but it has no obligation to do so. This approach underestimates the influence that business can have in establishing the law.

AACSB: 2, 3 BT: Knowledge Difficulty: Easy Learning Objective: 5

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Chapter 09 - Business the Environment and Sustainability

12. (p. 383) The three pillars of sustainability include goals to achieve economic, environmental, and competitive sustainability. FALSE

The three goals, economic, environmental, and ethical sustainability, are often referred to as the three pillars of sustainability.

AACSB: 3 BT: Knowledge Difficulty: Easy Learning Objective: 6

13. (p. 384) The ‘circular flow model' explains the nature of economic transactions in terms of the flow of resources from businesses to households and back again. TRUE

What is sometimes called the "circular flow model" explains the nature of economic transactions in terms of a flow of resources from businesses to households and back again.

AACSB: 2 BT: Knowledge Difficulty: Medium Learning Objective: 6

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Chapter 09 - Business the Environment and Sustainability

14. (p. 385) The circular flow model differentiates natural resources from the other factors of production. FALSE

The circular flow model does not differentiate natural resources from the other factors of production.

AACSB: 2 BT: Knowledge Difficulty: Medium Learning Objective: 6

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Chapter 09 - Business the Environment and Sustainability

15. (p. 388) Firms that fail to adapt to the converging lines of decreasing availability of resources and increasing demand risk their own survival. TRUE

Firms that fail to adapt to the converging lines of decreasing availability of resources and increasing demand risk their own survival.

AACSB: 2, 3 BT: Knowledge Difficulty: Medium Learning Objective: 7

Multiple Choice Questions

16. (p. 372) The Triple Bottom Line approach involves the measurement of business success of sustainable businesses and sustainable economic development in terms of all of the following factors except a. economic sustainability. B. legal sustainability. c. ethical sustainability. d. environmental sustainability.

Sustainable business and sustainable economic development seek to create new ways of doing business in which business success is measured in terms of economic, ethical, and environmental sustainability, often called the Triple Bottom Line approach.

AACSB: 1, 2 BT: Knowledge Difficulty: Easy Learning Objective: 1

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Chapter 09 - Business the Environment and Sustainability

17. (p. 372) The _____ sees environmental responsibilities as a fundamental part of basic business practice. a. adherence paradigm b. Triple Bottom Line c. ethical treatment of employees D. sustainability paradigm

The sustainability paradigm sees environmental responsibilities as a fundamental part of basic business practice.

AACSB: 2, 3 BT: Knowledge Difficulty: Medium Learning Objective: 1

18. (p. 373) The interrelatedness of natural systems has helped mankind understand the wide range of dependence on ecosystems. This fact has increased the importance of a. understanding the moral nature of animals. b. governmental regulations for ethical behavior. C. self-interested reasoning. d. innovation.

One aspect of contemporary environmental realities underscores the importance of selfinterested reasoning. The science of ecology and its understanding of the interrelatedness of natural systems have helped us understand the wide range of human dependence on ecosystems.

AACSB: 2, 3 BT: Comprehension Difficulty: Hard Learning Objective: 1

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Chapter 09 - Business the Environment and Sustainability

19. (p. 374) _____ argued against the exploitation of natural resources as if they could provide an inexhaustible supply of material. A. Conservationists b. Naturalists c. Animal rights activists d. Biologists

Conservationists argued against the exploitation of natural resources as if they could provide an inexhaustible supply of material.

AACSB: 3 BT: Knowledge Difficulty: Easy Learning Objective: 1

20. (p. 375) The approach that animals with a central nervous system feel pain is akin to the _____ ethical framework which asserts an ethical responsibility to minimize pain. a. social justice b. virtue ethics C. utilitarian d. deontological

The first approach emphasizes the fact that many animals, presumably all animals with a central nervous system, have the capacity to feel pain. Reminiscent of the utilitarian tradition, this view asserts an ethical responsibility to minimize pain.

AACSB: 3 BT: Knowledge Difficulty: Medium Learning Objective: 1

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Chapter 09 - Business the Environment and Sustainability

21. (p. 376 – 377) All of the following are characteristics of a market approach to environmental responsibilities except a. that a responsible business manager simply seeks profits. b. that the market allocates resources efficiently. C. the businesses develop a compliance structure ensuring conformation to certain regulations. d. the business fills its role within a market system, thus serving greater overall good.

If the best approach to environmental concerns is to trust them to efficient markets, then the responsible business manager simply ought to seek profits and allow the market to allocate resources efficiently. By doing this, business fills its role within a market system, which in turn serves the greater overall (utilitarian) good.

AACSB: 2, 3 BT: Knowledge Difficulty: Hard Learning Objective: 2

22. (p. 377) According to William Baxter, society, through the activities of individuals, will be willing to pay for an ‘optimal level of pollution' as long as the _____ outweigh the final costs. a. initial expenses b. ethical benefits c. communal spirit D. perceived benefits

Society, through the activities of individuals, will be willing to pay for pollution reduction as long as the perceived benefits outweigh the costs.

AACSB: 3 BT: Knowledge Difficulty: Easy Learning Objective: 3

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Chapter 09 - Business the Environment and Sustainability

23. (p. 377) In economic terms, all resources are infinite. Why? A. Since all resources can be replaced by substitutes, i.e., they are ‘fungible'. b. Since governmental regulations will ensure that resources are distributed fairly. c. The advent of technology will ensure that all resources are recyclable. d. Since efficient markets will distribute resources efficiently and with care.

The free market also provides an answer for resource conservation. From a strict market economic perspective, resources are "infinite." In economic terms, all resources are "fungible." They can be replaced by substitutes, and in this sense resources are infinite.

AACSB: 3 BT: Knowledge Difficulty: Medium Learning Objective: 3

24. (p. 378) The fact that future generations, neighbors, etc. will bear the brunt of environmental pollution, it goes to show that market failure can occur through means of a. lack of ability to create a price for important social goods. B. the existence of externalities. c. the distinction between individual decisions and group decisions. d. the distinction between individual decisions and group consequences.

One reason for market failure is the existence of externalities, an example for which is environmental pollution. Since the "costs" of such things as air pollution, groundwater contamination and depletion, soil erosion, and nuclear waste disposal are typically borne by parties "external" to the economic exchange, free market exchanges cannot guarantee optimal results.

AACSB: 3 BT: Knowledge Difficulty: Easy Learning Objective: 4

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25. (p. 378) Markets can work to prevent harm only through information supplied by the existence of market failures. This is termed a. normative myopia. b. cause-and-effect. C. first-generation problem. d. primary market effect.

One important reason for the inadequacy of markets to combat environmental responsibilities is what has been called the first-generation problem. Markets can work to prevent harm only through information supplied by the existence of market failures.

AACSB: 3 BT: Knowledge Difficulty: Easy Learning Objective: 4

26. (p. 381) Before the passage of governmental regulations regarding environmental issues, according to _____, only those individuals with proof of harm through pollution could raise legal challenges pollution. a. contractual law b. market requirements c. common consensus D. tort law

Before this legislation was enacted, the primary legal avenue open for addressing environmental concerns was tort law. Only individuals who could prove that they had been harmed by pollution could raise legal challenges to air and water pollution.

AACSB: 3 BT: Knowledge Difficulty: Easy Learning Objective: 2

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Chapter 09 - Business the Environment and Sustainability

27. (p. 382 – 383) All of the following are inadequacies associated with Norman Bowie's view of corporate social and environmental responsibility except that a. it underestimates the influence business has in establishing the law. B. it contends that environmental protection will extend further than legal jurisdictions. c. it underestimates the ability of business to influence consumer choice. d. it assumes that economic growth is environmentally and ethically benign.

If we rely on the law to protect the environment, environmental protection will extend only as far as the law extends. Yet, most environmental issues, pollution problems especially, do not respect legal jurisdictions.

AACSB: 2, 3 BT: Knowledge Difficulty: Medium Learning Objective: 5

28. (p. 383) Advertising is a $200 billion a year industry in the United States alone. What does this prove? a. Business can influence the establishment of the law. b. Environmental protection extends only as far as the law extends. C. Business can influence consumer choice. d. Economic growth is environmentally and ethically benign.

Advertising is a $200 billion a year industry in the United States alone. It is surely misleading to claim that business passively responds to consumer desires and that consumers are unaffected by the messages that business conveys.

AACSB: 3 BT: Knowledge Difficulty: Easy Learning Objective: 5

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29. (p. 383) The three goals of sustainable development that include economic, environmental, and ethical sustainability are referred to as the a. Tripartite Goals. B. three pillars of sustainability. c. Three Pronged charter. d. shoulder of sustainability.

These three goals, economic, environmental, and ethical sustainability, are often referred to as the three pillars of sustainability.

AACSB: 3 BT: Knowledge Difficulty: Easy Learning Objective: 6

30. (p. 384) _____ explains the nature of economic transactions in the terms of a flow of resources from businesses to households and back again. A. Circular flow model b. The three pillars of sustainability c. Triple Bottom Line d. Bilinear model

What is sometimes called the "circular flow model" explains the nature of economic transactions in terms of a flow of resources from businesses to households and back again.

AACSB: 3 BT: Knowledge Difficulty: Easy Learning Objective: 6

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Chapter 09 - Business the Environment and Sustainability

31. (p. 385) One aspect of the circular flow model does not differentiate natural resources from other factors of production. Thus it a. does not respect that resources can be sold. b. means that resources are not infinite. C. does not explain the origin of resources. d. thus it means that households cannot own these resources.

One aspect of the circular flow model does not differentiate natural resources from the other factors of production. This model does not explain the origin of resources.

AACSB: 2, 3 BT: Knowledge Difficulty: Medium Learning Objective: 6

32. (p. 385) All of the following are characteristics of the circular flow model except a. that to keep up with population growth, the economy must grow. b. that to provide higher standards of living, the economy must grow. c. that to alleviate poverty, hunger, and disease, economy must grow. D. that the economy is not a solution to all social ills and is finite in its ability to grow.

A second observation is that this model treats economic growth as both the solution to all social ills and also as boundless.

AACSB: 3 BT: Knowledge Difficulty: Hard Learning Objective: 6

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33. (p. 386) According to Daly, the emphasis of economic growth as the goal of economic policy will inevitably fail unless it is realized that a. the population of the world needs to be controlled. B. the economy is a subsystem within earth's biosphere. c. resources are infinite. d. efficient markets need to be stabilized to ensure higher economic returns.

Daly argues that neoclassical economics, with its emphasis on economic growth as the goal of economic policy, will inevitably fail to meet these challenges unless it recognizes that the economy is but a subsystem within earth's biosphere.

AACSB: 2, 3 BT: Knowledge Difficulty: Medium Learning Objective: 6

34. (p. 386) According to Daly, an economic system needs to be able to _____ not only the byproducts of the production process, but also the products themselves. A. recycle or re-use b. design c. monitor d. patent

Daly argues that we need to develop an economic system that uses resources only at a rate that can be sustained over the long term and that recycles or reuses both the by-products of the production process and the products themselves.

AACSB: 3 BT: Knowledge Difficulty: Easy Learning Objective: 6

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35. (p. 386 – 387) According to the sustainable model, entropy increased within a closed space implies that a. the amount of re-usable products decreases with increase in production. b. the economy exists within a finite biosphere. c. wastes are not produced at each stage of economic activity. D. the amount of usable energy decreases over time.

Consistent with the second law of thermodynamics (entropy increased within a closed system), the amount of usable energy decreases over time.

AACSB: 3 BT: Knowledge Difficulty: Easy Learning Objective: 6

36. (p. 387) According to Daly, over the long term, resources and energy cannot be used, nor waste produced, at rates which the biosphere cannot replace or absorb them without harming its ability to sustain life. This is termed as a. economic limitations. b. economic agendas for the future. C. biophysical limits to growth. d. un-expendable boundaries.

Over the long term, resources and energy cannot be used, nor waste produced, at rates at which the biosphere cannot replace or absorb them without jeopardizing its ability to sustain (human) life. These are what Daly calls the "biophysical limits to growth.

AACSB: 2, 3 BT: Knowledge Difficulty: Easy Learning Objective: 6

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37. (p. 387) The second line in The Natural Step's funnel represents a. resources necessary to sustain life. b. resources that are biodegradable. c. the biosphere limits. D. aggregate worldwide demand.

The second line represents aggregate worldwide demand, accounting for both population growth and the increasing demand of consumerist lifestyles.

AACSB: 2, 3 BT: Knowledge Difficulty: Easy Learning Objective: 7

38. (p. 387) Knowing what the future might be; creative businesses _____ the present and determine what must be done to arrive to that future. A. backcast to b. chart c. change d. design

"Backcasting" examines what the future will be when we emerge through the funnel. Knowing what the future must be, creative businesses then look backwards to the present and determine what must be done to arrive at that future.

AACSB: 3 BT: Knowledge Difficulty: Easy Learning Objective: 7

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39. (p. 388) The importance of the need for firms to be ahead of the sustainability curve is underlined by which among the following reasons for businesses to pursue the strategy of sustainability? a. Sustainability is a prudent long-term strategy. b. Significant cost savings can be achieved through sustainable practices. C. Competitive advantages exist for sustainable businesses. d. Sustainability is a good risk management strategy.

Competitive advantages exist for sustainable businesses: Firms that are ahead of the sustainability curve will both have an advantage serving environmentally conscious consumers and enjoy a competitive advantage attracting workers who will take pride and satisfaction in working for progressive firms.

AACSB: 3 BT: Knowledge Difficulty: Medium Learning Objective: 7

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40. (p. 390) Estimates suggesting that with present technologies, businesses can readily achieve at least a fourfold increase in efficiency, and perhaps as much as a tenfold increase. This can be achieved through a. biomimicry. B. ecoefficiency. c. cradle-to-cradle responsibility. d. service-based economy.

Ecoefficiency has long been a part of the environmental movement. "Doing more with less" has been an environmental guideline for decades. Some estimates suggest that with present technologies alone, business could readily achieve at least a fourfold increase in efficiency and perhaps as much as a tenfold increase.

AACSB: 2, 3 BT: Knowledge Difficulty: Easy Learning Objective: 8

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41. (p. 390) Which among the following entails an incentive to redesign products so that they can be recycled efficiently and easily? a. Biomimicry b. Service-based economy C. Cradle-to-cradle responsibility d. Ecoefficiency

Cradle-to-cradle responsibility extends this idea even further and holds that a business should be responsible for incorporating the end results of its products back into the productive cycle. This responsibility, in turn, would create incentives to redesign products so that they could be recycled efficiently and easily.

AACSB: 2, 3 BT: Knowledge Difficulty: Medium Learning Objective: 8

Fill in the Blank Questions

42. (p. 382) Government established regulatory standards to try to prevent the occurrence of pollution or species extinction rather than to offer _____ after the fact. compensation

Government established regulatory standards to try to prevent the occurrence of pollution or species extinction rather than to offer compensation after the fact.

AACSB: 3 BT: Knowledge Difficulty: Medium Learning Objective: 2

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Chapter 09 - Business the Environment and Sustainability

43. (p. 383) Norman Bowie's approach to businesses' environmental responsibilities assume that economic growth is environmentally and ethically _____. benign

Finally, and perhaps most troubling from an environmental standpoint, this regulatory model assumes that economic growth is environmentally and ethically benign.

AACSB: 3 BT: Knowledge Difficulty: Easy Learning Objective: 5

44. (p. 384) It has been stated by Daly that _____ transcends the more common standard of economic growth. economic development

Daly makes a convincing case for an understanding of economic development that transcends the more common standard of economic growth.

AACSB: 3 BT: Knowledge Difficulty: Hard Learning Objective: 6

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45. (p. 384) _____ is development that meets the needs of the present without compromising the ability of future generations to meet their own needs. Sustainable development

"Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs."

AACSB: 2, 3 BT: Knowledge Difficulty: Easy Learning Objective: 6

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46. (p. 385) The _____ treats economic growth as both the solution to all social ills and also as boundless. circular flow model

A second observation is that the circular flow model treats economic growth as both the solution to all social ills and also as boundless.

AACSB: 3 BT: Knowledge Difficulty: Easy Learning Objective: 6

47. (p. 386) "_____" is continuously leaving the economic system and thus new low-entropy energy must constantly flow into the system. Waste energy

"Waste energy" is continuously leaving the economic system and thus new low-entropy energy must constantly flow into the system.

AACSB: 2, 3 BT: Knowledge Difficulty: Easy Learning Objective: 6

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48. (p. 387) _____ examines what the future will be when we emerge through the Natural Step funnel. Backcasting

"Backcasting" examines what the future will be when we emerge through the funnel.

AACSB: 3 BT: Knowledge Difficulty: Easy Learning Objective: 7

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Chapter 09 - Business the Environment and Sustainability

49. (p. 387) The "_____" maintains that he biosphere can produce resources indefinitely, and can absorb wastes indefinitely, but only at a certain type of economic activity. biophysical limits to growth

"Biophysical limits to growth - The biosphere can produce resources indefinitely, and it can absorb wastes indefinitely, but only at a certain rate and with a certain type of economic activity.

AACSB: 3 BT: Knowledge Difficulty: Hard Learning Objective: 6

50. (p. 388) Avoiding future governmental regulation is one benefit of the _____. Natural Step Funnel

Refusing to move towards sustainability offers many downsides that innovative firms will avoid. Avoiding future government regulation is one obvious benefit.

AACSB: 3 BT: Knowledge Difficulty: Hard Learning Objective: 7

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51. (p. 388) From the perspective of the Natural Step Funnel, firms that are ahead of the _____ will both have an advantage serving environmentally conscious consumers, and enjoy competitive advantage. sustainability curve

Firms that are ahead of the sustainability curve will both have an advantage serving environmentally conscious consumers and enjoy a competitive advantage attracting workers who will take pride and satisfaction in working for progressive firms.

AACSB: 2, 3 BT: Knowledge Difficulty: Hard Learning Objective: 7

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Chapter 09 - Business the Environment and Sustainability

52. (p. 389) In a sustainable business model, resources should not enter into the economic cycle from the _____ at rates faster than they are replenished. biosphere

In the simplest terms, resources should not enter into the economic cycle from the biosphere at rates faster than they are replenished.

AACSB: 3 BT: Knowledge Difficulty: Easy Learning Objective: 7

53. (p. 390) _____ would make it possible to achieve double the productivity from one-half the resource use. Factor-Four

Consider that a fourfold increase, called "Factor-Four" in the sustainability literature, would make it possible to achieve double the productivity from one-half the resource use.

AACSB: 3 BT: Knowledge Difficulty: Medium Learning Objective: 8

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54. (p. 390) The ultimate goal of _____ is to eliminate waste altogether, rather than reduce it. biomimicry

The ultimate goal of biomimicry is to eliminate waste altogether rather than reducing it.

AACSB: 3 BT: Knowledge Difficulty: Easy Learning Objective: 8

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55. (p. 390) A business being responsible for incorporating the end results of its products back into the productive cycle is trait of the _____. cradle-to-cradle responsibility

Cradle-to-cradle responsibility extends this idea even further and holds that a business should be responsible for incorporating the end results of its products back into the productive cycle.

AACSB: 3 BT: Knowledge Difficulty: Medium Learning Objective: 8

56. (p. 391) Beyond ecoefficiency, and biomimicry, a third sustainable business principle involves a shift in business model from _____ to _____. products, services

Beyond ecoefficiency and biomimicry, a third sustainable business principle involves a shift in business model from products to services.

AACSB: 2, 3 BT: Knowledge Difficulty: Medium Learning Objective: 8

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Essay Questions

57. (p. 374 – 375) Describe the characteristics of the conservation movement. Explain the spiritual aspect of the need to conserve the environment.

By the late 19th century, humans came to recognize the self-interested reasons for protecting the natural environment. The conservation movement, the first phase of modern environmentalism, advocated a more restrained and prudent approach to the natural world. From this perspective, the natural world was still valued as a resource, providing humans with both direct benefits (air, water, food), and indirect benefits (the goods and services produced by business). Conservationists argued against the exploitation of natural resources as if they could provide an inexhaustible supply of material. They made the case that business had good reasons for conserving natural resources, reasons that paralleled the rationale to conserve financial resources. The natural world, like capital, had the productive capacity to produce long-term income but only if managed and used prudently. Besides the obvious reasons to protect human life and health, the natural environment is essential and valuable for many other reasons. Often, these other values conflict with the more direct instrumental value that comes from treating the natural world as a resource. The beauty and grandeur of the natural world provide great aesthetic and inspirational value. Many people view the natural world as a manifestation of religious and spiritual values. Parts of the natural world can have symbolic value, historical value, and such diverse psychological values as serenity and exhilaration. These values can clearly conflict with the use of the earth itself as a resource to physically, as opposed to spiritually, sustain those who live on it.

AACSB: 2, 3 BT: Comprehension Difficulty: Hard Learning Objective: 1

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58. (p. 375 – 376) Distinguish between the two approaches to the aspect of moral status being assigned to animals.

The moral status of animals has been the environmental value that, arguably, has raised the greatest challenge to business. Variously referred to as the animal rights, animal liberation, or animal welfare movement, this approach attributes a moral standing to animals. Such a status would create a wide variety of distinctive ethical responsibilities concerning how we treat animals and would have significant implications for many businesses. Two versions of this perspective are worth mentioning. The first approach emphasizes the fact that many animals, presumably all animals with a central nervous system, have the capacity to feel pain. Reminiscent of the utilitarian tradition, this view asserts an ethical responsibility to minimize pain. Inflicting unnecessary pain is taken to be an ethical wrong; therefore, acts that inflict unnecessary pain on animals are ethically wrong. Raising and slaughtering animals for food, particularly in the way industrial farming enterprises raise poultry, hogs, and cattle, would be an obvious case in which business would violate this ethical responsibility. A second approach argues that at least some animals have the cognitive capacity to possess a conscious life of their own. Reminiscent of the Kantian ethical tradition, this view asserts that we have a duty not to treat these animals as mere objects and means to our own ends. Again, businesses that use animals for food, entertainment, or pets would violate the ethical rights of these animals.

AACSB: 2, 3 BT: Comprehension Difficulty: Medium Learning Objective: 1

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59. (p. 376 – 377) Enumerate upon the features of approaching environmental responsibilities from the perspective of efficient markets.

If the best approach to environmental concerns is to trust them to efficient markets, then the responsible business manager simply ought to seek profits and allow the market to allocate resources efficiently. By doing this, business fills its role within a market system, which in turn serves the greater overall (utilitarian) good. Defenders of the market approach contend that environmental problems are economic problems that deserve economic solutions. Fundamentally, environmental problems involve the allocation and distribution of limited resources. Whether we are concerned with the allocation of scarce nonrenewable resources such as gas and oil, or with the earth's capacity to absorb industrial by-products such as CO 2 or PCBs, efficient markets can address environmental challenges. According to William Baxter, society could strive for pure air and water, but the costs (lost opportunities) that this would entail would be too high. A more reasonable approach is to aim for air and water quality that is safe enough to breathe and drink without costing too much. This balance, the "optimal level of pollution" can be achieved through competitive markets. The free market also provides an answer for resource conservation. From a strict market economic perspective, resources are "infinite." As the supply of any resources decreases, the price increases, thereby providing a strong incentive to supply more or provide a less costly substitute. In economic terms, all resources are "fungible." They can be replaced by substitutes, and in this sense resources are infinite. A similar case can be made for the preservation of environmentally sensitive areas. Preservation for preservation's sake would be wasteful since it would use resources inefficiently.

AACSB: 3 BT: Comprehension Difficulty: Hard Learning Objective: 2

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60. (p. 378 – 380) Discuss the challenges associated with the efficient market approach to environmental responsibilities.

A variety of market failures involving environmental issues, point to the inadequacy of market solutions. Since the "costs" of such things as air pollution, groundwater contamination and depletion, soil erosion, and nuclear waste disposal are typically borne by parties "external" to the economic exchange (e.g., people downwind, neighbors, and future generations), free market exchanges cannot guarantee optimal results. A second type of market failure occurs when no markets exist to create a price for important social goods. Endangered species, scenic vistas, rare plants and animals, and biodiversity are just some environmental goods that typically are not traded on open markets. Public goods such as clean air and ocean fisheries also have no established market price. With no established exchange value, the market approach cannot even pretend to achieve its own goals of efficiently meeting consumer demand. Markets alone fail to guarantee that such important public goods are preserved and protected. A third way in which market failures can lead to serious environmental harm involves a distinction between individual decisions and group consequences. We can miss important ethical and policy questions if we leave policy decisions solely to the outcome of individual decisions. Because these are important ethical questions, and because they remain unasked from within market transactions, we must conclude that markets are incomplete (at best) in their approach to the overall social good. There are good reasons for thinking that such ad hoc attempts to repair market failures are environmentally inadequate. One important reason is what has been called the first-generation problem. Markets can work to prevent harm only through information supplied by the existence of market failures. That is, we learn about market failures and thereby prevent harms in the future only by sacrificing the "first generation" as a means of gaining this information. When public policy involves irreplaceable public goods such as endangered species, rare wilderness areas, and public health and safety, such a reactionary strategy is ill advised.

AACSB: 3 BT: Comprehension Difficulty: Hard Learning Objective: 4

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61. (p. 381 – 382) List the various laws in accordance to governmental regulation of the environment. Describe the method of addressing environmental concerns prior to the establishment of laws.

Governmental regulations were seen as the better way to respond to environmental problems. Much of the most significant environmental legislation in the United States was enacted during the 1970s. The Clean Air Act of 1970 (amended and renewed in 1977), Federal Water Pollution Act of 1972 (amended and renewed as the Clean Water Act of 1977), and the Endangered Species Act of 1973 were part of this national consensus for addressing environmental problems. Each law was originally enacted by a Democratic Congress and signed into law by a Republican president. These laws share a common approach to environmental issues. Before this legislation was enacted, the primary legal avenue open for addressing environmental concerns was tort law. Only individuals who could prove that they had been harmed by pollution could raise legal challenges to air and water pollution. That legal approach placed the burden on the person who was harmed and, at best, offered compensation for the harm only after the fact. Except for the incentive provided by the threat of compensation, U.S. policy did little to prevent the pollution in the first place. Absent any proof of negligence, public policy was content to let the market decide environmental policy. Because endangered species themselves had no legal standing, direct harm to plant and animal life was of no legal concern and previous policies did little to prevent harm to plant and animal life.

AACSB: 2, 3 BT: Knowledge, Comprehension Difficulty: Medium Learning Objective: 2

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62. (p. 382) Discuss how businesses and societies had opportunities to establish business's environmental responsibilities. Discuss Norman Bowie's interpretation.

Government established regulatory standards to try to prevent the occurrence of pollution or species extinction rather than to offer compensation after the fact. We can think of these laws as establishing minimum standards to ensure air and water quality and species preservation. Business was free to pursue its own goals as long as it complied with the side constraints these minimum standards established. The consensus that emerged was that society had two opportunities to establish business's environmental responsibilities. As consumers, individuals could demand environmentally friendly products in the marketplace. As citizens, individuals could support environmental legislation. As long as business responded to the market and obeyed the law, it met its environmental responsibilities. Philosopher Norman Bowie defended a modified version of this narrow view of corporate social responsibility. Bowie argued that, apart from the duties to cause no avoidable harm to humans and to obey the law, business has no special environmental responsibility. Business may voluntarily choose to do environmental good, but it has no obligation to do so. Business should be free to pursue profits by responding to the demands of the economic marketplace without any particular regard to environmental responsibilities. In so far as society desires environmental goods (for example, lowering pollution by increasing the fuel efficiency of automobiles), it is free to express those desires through legislation or within the marketplace. Absent those demands, business has no special environmental responsibilities.

AACSB: 3 BT: Knowledge Difficulty: Hard Learning Objective: 5

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63. (p. 382 – 383) Describe the challenges associated with Norman Bowie's approach to corporate environmental responsibility.

Several problems suggest that this approach will prove inadequate over the long term. First, it underestimates the influence that business can have in establishing the law. The Corporate Automotive Fuel Efficiency (CAFE) standards provide a good example of how this can occur. A reasonable account of this law suggests that the public very clearly expressed a political goal of improving air quality by improving automobile fuel efficiency goals (and thereby reducing automobile emissions). However, the automobile industry was able to use its lobbying influence to exempt light trucks and SUVs from these standards. Second, this approach also underestimates the ability of business to influence consumer choice. To conclude that business fulfills its environmental responsibility when it responds to the environmental demands of consumers is to underestimate the role that business can play in shaping public opinion. The best example would be the advertising industry. Assuming that business is not going to stop advertising its products or lobbying government, this model of corporate environmental responsibility is likely to prove inadequate for protecting the natural environment. Further, if we rely on the law to protect the environment, environmental protection will extend only as far as the law extends. Yet, most environmental issues, pollution problems especially, do not respect legal jurisdictions. Similarly, national regulations will be ineffective for international environmental challenges. Finally, and perhaps most troubling from an environmental standpoint, this regulatory model assumes that economic growth is environmentally and ethically benign. Regulations establish side constraints on business's pursuit of profits and, as long as they remain within those constraints, accept as ethically legitimate whatever road to profitability management chooses.

AACSB: 2, 3 BT: Comprehension Difficulty: Hard Learning Objective: 5

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64. (p. 384 – 385) Introduce Herman Daly's concepts of sustainable development. Describe the circular flow model in detail.

Economist Herman Daly has been among the leading thinkers who have advocated an innovative approach to economic theory based on the concept of sustainable development. Daly makes a convincing case for an understanding of economic development that transcends the more common standard of economic growth. Unless we make significant changes in our understanding of economic activity, unless quite literally we change the way we do business, we will fail to meet some very basic ethical and environmental obligations. According to Daly, we need a major paradigm shift in how we understand economic activity. We can begin with the standard understanding of economic activity and economic growth found in almost every economics textbook. What is sometimes called the "circular flow model" explains the nature of economic transactions in terms of a flow of resources from businesses to households and back again. Two aspects of this circular flow model are worth noting. First, it does not differentiate natural resources from the other factors of production. This model does not explain the origin of resources. They are simply owned by households from which they, like labor, capital, and entrepreneurial skill, can be sold to business. Services can be provided in many ways and by substituting different factors of production. In Simon's terms, resources can therefore be treated as "infinite." A second observation is that this model treats economic growth as both the solution to all social ills and also as boundless. To keep up with population growth, the economy must grow. To provide for a higher standard of living, the economy must grow. To alleviate poverty, hunger, and disease, the economy must grow. The possibility that the economy cannot grow indefinitely is simply not part of this model.

AACSB: 2, 3 BT: Knowledge Difficulty: Hard Learning Objective: 6

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65. (p. 388 – 389) Briefly describe the reasons supporting the practice of sustainability within businesses.

First, sustainability is a prudent long-term strategy: business will need to adopt sustainable practices to ensure long-term survival. Firms that fail to adapt to the converging lines of decreasing availability of resources and increasing demand risk their own survival. Second, the huge unmet market potential among the world's developing economies can only be met in sustainable ways. Enormous business opportunities exist in serving the billions of people who need, and are demanding, economic goods and services. The base of the economic pyramid represents the largest and fastest-growing economic market in human history. Yet, the sheer size of these markets alone makes it impossible to meet this demand with the environmentally damaging industrial practices. It is obvious that new sustainable technologies and products will be required to meet these demands. Third, significant cost savings can be achieved through sustainable practices: Business stands to save significant costs in moves towards ecoefficiency. Savings on energy use and materials will reduce not only environmental wastes, but spending wastes as well. Minimizing wastes makes sense on financial grounds as well as on environmental grounds. Fourth, competitive advantages exist for sustainable businesses: Firms that are ahead of the sustainability curve will both have an advantage serving environmentally conscious consumers and enjoy a competitive advantage attracting workers who will take pride and satisfaction in working for progressive firms. Finally, sustainability is a good risk management strategy: Refusing to move towards sustainability offers many downsides that innovative firms will avoid. Avoiding future government regulation is one obvious benefit. Avoiding legal liability for unsustainable products is another potential benefit. Consumer boycotts of unsustainable firms are also a risk to be avoided.

AACSB: 2, 3 BT: Knowledge Difficulty: Hard Learning Objective: 7

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66. (p. 390) Explain the concept of ecoefficiency, biomimicry and cradle-to-cradle responsibility.

Ecoefficiency has long been a part of the environmental movement. "Doing more with less" has been an environmental guideline for decades. Some estimates suggest that with present technologies alone, business could readily achieve at least a fourfold increase in efficiency and perhaps as much as a tenfold increase. Consider that a fourfold increase, called "FactorFour" in the sustainability literature, would make it possible to achieve double the productivity from one-half the resource use. Just as biological processes such as photosynthesis cycle the "waste" of one activity into the resource of another, this principle is often referred to as biomimicry. The ultimate goal of biomimicry is to eliminate waste altogether rather than reducing it. If we truly mimic biological processes, the end result of one process (e.g., leaves and oxygen produced by photosynthesis) is ultimately reused as the productive resources (e.g., soil and water) of another process (plant growth) with only solar energy added. The evolution of business strategy towards biomimicry can be understood along a continuum. The earliest phase has been described as "take-make-waste." Business takes resources, makes products out of them, and discards whatever is left over. A second phase envisions business taking responsibility for its products from "cradle to grave." Sometimes referred to as "life-cycle" responsibility, this approach has already found its way into both industrial and regulatory thinking. Cradle-to-grave, or life-cycle, responsibility holds that a business is responsible for the entire life of its products, including the ultimate disposal even after the sale. It extends this idea even further and holds that a business should be responsible for incorporating the end results of its products back into the productive cycle. This responsibility, in turn, would create incentives to redesign products so that they could be recycled efficiently and easily.

AACSB: 2, 3 BT: Knowledge Difficulty: Hard Learning Objective: 8

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67. (p. 373) Explain the first aspect of the contemporary environmental reality which underlines the need for self-interested reasoning.

Past human societies have often run up against the limits of the local environment's ability to sustain human life. In these historical cases, environmental degradation has been localized to a particular region and has seldom affected more than a generation. In contrast, some contemporary environmental issues have the potential to adversely affect the entire globe and change human life forever. Global climate change, species extinction, soil erosion and desertification, and nuclear wastes will threaten human life into the indefinite future.

AACSB: 2, 3 BT: Knowledge Difficulty: Medium Learning Objective: 1

68. (p. 377) What is the concept of optimal level of pollution?

William Baxter argued that there is an optimal level of pollution that would best serve society's interests. This optimal level is best attained, according to Baxter, by leaving it to a competitive market. Denying that there is any "natural" or objective standard for clean air or water (as this view would deny there is an objective state of perfect health), Baxter begins with a goal of "safe" air and water quality, and translates this goal to a matter of balancing risks and benefits. A more reasonable approach is to aim for air and water quality that is safe enough to breathe and drink without costing too much. This balance, the "optimal level of pollution" can be achieved through competitive markets.

AACSB: 2, 3 BT: Knowledge Difficulty: Hard Learning Objective: 3

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69. (p. 378) What do defenders of the market approach to environmental responsibilities state?

Defenders of a narrow view of corporate social responsibility have responses to these challenges of course. Internalizing external costs and assigning property rights to un-owned goods such as wild species are two responses to market failures.

AACSB: 2, 3 BT: Knowledge Difficulty: Easy Learning Objective: 4

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70. (p. 383) Explain how relying on the law will result in environmental protection extending only as far as the law extends with an example.

Most environmental issues, pollution problems especially, do not respect legal jurisdictions. New York State might pass strict regulations on smokestack emissions, but if the power plants are located downwind in Ohio or even further west in the Dakotas or Wyoming, New York State will continue to suffer the effects of acid rain. Similarly, national regulations will be ineffective for international environmental challenges. While hope remains that international agreements might help control global environmental problems, the failure of the Kyoto agreement suggests that this might be overly optimistic.

AACSB: 3 BT: Comprehension Difficulty: Medium Learning Objective: 5

71. (p. 383 – 384) Why was the Brundtland Commission formed?

The concept of sustainable development can be traced to a 1987 report from the United Nations' World Commission on Environment and Development (WCED), more commonly known as the Brundtland Commission, named for its chair, Gro Harlem Brundtland. The commission was charged with developing recommendations for paths towards economic and social development that would not achieve short-term economic growth at the expense of long-term environmental and economic sustainability. The Brundtland Commission offered what has become the standard definition of sustainable development. "Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs."

AACSB: 2, 3 BT: Knowledge Difficulty: Hard Learning Objective: 6

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72. (p. 386) How does Herman Daly prove that the classical model will prove unstable if resources move at a pace faster than the productive capacity of the earth?

Daly argues that neoclassical economics, with its emphasis on economic growth as the goal of economic policy, will inevitably fail to meet these challenges unless it recognizes that the economy is but a subsystem within earth's biosphere. Economic activity takes place within this biosphere and cannot expand beyond its capacity to sustain life. All the factors that go into production—natural resources, capital, entrepreneurial skill, and labor—ultimately originate in the productive capacity of the earth. In light of this, the entire classical model will prove unstable if resources move through this system at a rate that outpaces the productive capacity of the earth or of the earth's capacity to absorb the wastes and by-products of this production.

AACSB: 2, 3 BT: Knowledge Difficulty: Hard Learning Objective: 6

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73. (p. 386 – 387) Explain Herman Daly's economic system model (sustainable model).

First, the model recognizes that the economy exists within a finite biosphere that encompasses a band around the earth that is little more than a few miles wide. From the first law of thermodynamics (the conservation of matter/energy), we recognize that neither matter nor energy can truly be "created," it can only be transferred from one form to another. Second, energy is lost at every stage of economic activity. Consistent with the second law of thermodynamics (entropy increased within a closed system), the amount of usable energy decreases over time. "Waste energy" is continuously leaving the economic system and thus new low-entropy energy must constantly flow into the system. Third, this model no longer treats natural resources as an undifferentiated and unexplained factor of production emerging from households. Finally, it recognizes that wastes are produced at each stage of economic activity and these wastes are dumped back into the biosphere.

AACSB: 2, 3 BT: Comprehension Difficulty: Medium Learning Objective: 6

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74. (p. 389) List the general principles that will guide the movement of businesses towards sustainability.

The precise implications of sustainability will differ for specific firms and industries, but three general principles will guide the move towards sustainability. Firms and industries must become more efficient in using natural resources; they should model their entire production process on biological processes; and they should emphasize the production of services rather than products.

AACSB: 3 BT: Knowledge Difficulty: Easy Learning Objective: 7

75. (p. 390) Explain with an example, how ecoefficiency can be implemented on an individual and a business scale.

"Doing more with less" has been an environmental guideline for decades. On an individual scale, it is environmentally better to ride a bike than to ride in a bus, to ride in a fuel-cell or hybrid-powered bus than in a diesel bus, to ride in a bus than to drive a personal automobile, and to drive a hybrid car than an SUV. Likewise, business firms can improve energy and materials efficiency in such things as lighting, building design, product design, and distribution channels.

AACSB: 2, 3 BT: Knowledge Difficulty: Easy Learning Objective: 8

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76. (p. 391) Explain the third sustainable business principle, beyond ecoefficiency, and biomimicry.

Beyond ecoefficiency and biomimicry, a third sustainable business principle involves a shift in business model from products to services. Traditional economic and managerial models interpret consumer demand as the demand for products—washing machines, carpets, lights, consumer electronics, air conditioners, cars, computers, and so forth. A service-based economy interprets consumer demand as a demand for services—for clothes cleaning, floor covering, illumination, entertainment, cool air, transportation, word processing, and so forth.

AACSB: 2, 3 BT: Knowledge Difficulty: Easy Learning Objective: 8

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