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Book Details
Abstract
Why study Economics for Business
Good economic decision making is fundamental to the success of business
Economic decisions lie at the heart of business. Economics is all about the choices between alternatives and how to weigh up their costs and benefits. Studying this book will help you understand such choices and how to make them successfully when you take up a job or perhaps run your own business.
Businesses need to make choices of what and how much to produce, what techniques to use, who to employ, what investment to make, where to locate, what markets to develop and how best to compete with rivals. Economics helps them make the right decisions.
But making the right decisions depends on the economic environment in which businesses operate. For example, government policy affects business: whether through taxation, subsidies, training and education, regulation or trade policies.
The economic environment is also affected by trade relations and the actions of international bodies such as the World Trade Organization (WTO) and the International Monetary Fund (IMF). Issues such as Brexit, trade deals and migration crucially affect businesses. The book shows you how.
You will be studying all these issues and more in this book. It will give you the skills to advise businesses and other organisations on how best to achieve their objectives. The advice of economists is crucial to good decision making.
But to give good advice requires understanding issues and assessing evidence. Studying economics helps to give you this understanding and makes you a better problem solver.
Table of Contents
| Section Title | Page | Action | Price |
|---|---|---|---|
| Front Cover | Front Cover | ||
| Half Title Page | i | ||
| Title Page | iii | ||
| Copyright Page | iv | ||
| About the authors | v | ||
| Brief contents | vii | ||
| Detailed contents | ix | ||
| Preface | xv | ||
| Publisher’s acknowledgements | xxii | ||
| Part A BUSINESS AND ECONOMICS | 2 | ||
| 1 The business environment and business economics | 4 | ||
| 1.1 The business environment | 5 | ||
| 1.2 The structure of industry | 11 | ||
| 1.3 The determinants of business performance | 14 | ||
| Box 1.1 A Lidl success story | 6 | ||
| Box 1.2 The biotechnology industry | 9 | ||
| Summary | 15 | ||
| Review questions | 15 | ||
| 2 Economics and the world of business | 16 | ||
| 2.1 What do economists study? | 16 | ||
| 2.2 Business economics: microeconomic choices | 18 | ||
| 2.3 Business economics: the macroeconomic environment | 22 | ||
| 2.4 Techniques of economic analysis | 25 | ||
| Box 2.1 What, how and for whom | 20 | ||
| Box 2.2 The opportunity costs of studying economics | 22 | ||
| Box 2.3 Looking at macroeconomic data | 24 | ||
| Summary | 25 | ||
| Review questions | 26 | ||
| 3 Business organisations | 27 | ||
| 3.1 The nature of firms | 27 | ||
| 3.2 The firm as a legal entity | 30 | ||
| 3.3 The internal organisation of the firm | 33 | ||
| Box 3.1 Exploiting asymmetric information | 31 | ||
| Box 3.2 Managers, pay and performance | 34 | ||
| Box 3.3 The changing nature of business | 38 | ||
| Summary | 39 | ||
| Review questions | 39 | ||
| Additional Part A case studies on the Economics for Business student website | 40 | ||
| Websites relevant to Part A | 40 | ||
| Part B BUSINESS AND MARKETS | 42 | ||
| 4 The working of competitive markets | 44 | ||
| 4.1 Business in a competitive market | 44 | ||
| 4.2 Demand | 47 | ||
| 4.3 Supply | 50 | ||
| 4.4 Price and output determination | 53 | ||
| Box 4.1 UK house prices | 55 | ||
| Box 4.2 Stock market prices | 58 | ||
| Box 4.3 Controlling prices | 60 | ||
| Summary | 62 | ||
| Review questions | 62 | ||
| 5 Business in a market environment | 64 | ||
| 5.1 Price elasticity of demand | 65 | ||
| 5.2 The importance of price elasticity of demand to business decision making | 67 | ||
| 5.3 Other elasticities | 70 | ||
| 5.4 The time dimension of market adjustment | 74 | ||
| 5.5 Dealing with uncertainty | 79 | ||
| Box 5.1 The measurement of elasticity | 69 | ||
| Box 5.2 Elasticity and the incidence of tax | 72 | ||
| Box 5.3 Adjusting to oil price shocks | 76 | ||
| Box 5.4 Bubble, bubble, toil and trouble | 80 | ||
| Summary | 83 | ||
| Review questions | 84 | ||
| Additional Part B case studies on the Economics for Business student website | 84 | ||
| Websites relevant to Part B | 85 | ||
| Part C BACKGROUND TO DEMAND | 86 | ||
| 6 Demand and the consumer | 88 | ||
| 6.1 Marginal utility theory | 89 | ||
| 6.2 Demand under conditions of risk and uncertainty | 93 | ||
| 6.3 The characteristics approach to analysing consumer demand | 103 | ||
| Box 6.1 Calculating consumer surplus | 91 | ||
| Box 6.2 The marginal utility revolution: Jevons, Menger, Walras | 92 | ||
| Box 6.3 Adverse selection in the insurance market | 100 | ||
| Box 6.4 Dealing with moral hazard and adverse selection | 101 | ||
| Summary | 108 | ||
| Review questions | 109 | ||
| 7 Behavioural economics of the consumer | 111 | ||
| 7.1 How does behavioural economics differ from standard theory? | 111 | ||
| 7.2 Framing and the reference point for decisions | 115 | ||
| 7.3 Caring about the pay-offs to others | 120 | ||
| 7.4 Government policy to influence behaviour | 122 | ||
| Box 7.1 Choice overload | 114 | ||
| Box 7.2 The endowment effect | 116 | ||
| Box 7.3 The best made plans | 118 | ||
| Box 7.4 A simple experiment to test for social preferences | 121 | ||
| Summary | 123 | ||
| Review questions | 124 | ||
| 8 Firms and the consumer | 125 | ||
| 8.1 Estimating demand functions | 126 | ||
| 8.2 Forecasting demand | 129 | ||
| 8.3 Product differentiation | 132 | ||
| 8.4 Marketing the product | 133 | ||
| 8.5 Advertising | 137 | ||
| Box 8.1 The battle of the brands | 134 | ||
| Box 8.2 The use of social media | 140 | ||
| Summary | 141 | ||
| Review questions | 141 | ||
| Additional Part C case studies on the Economics for Business student website | 142 | ||
| Websites relevant to Part C | 142 | ||
| Part D BACKGROUND TO SUPPLY | 144 | ||
| 9 Costs of production | 146 | ||
| 9.1 The meaning of costs | 146 | ||
| 9.2 Production in the short run | 147 | ||
| 9.3 Costs in the short run | 151 | ||
| 9.4 Production in the long run | 155 | ||
| 9.5 Costs in the long run | 161 | ||
| Box 9.1 Should we ignore sunk costs? | 148 | ||
| Box 9.2 How vulnerable are you? | 154 | ||
| Box 9.3 Lights, camera, action | 158 | ||
| Box 9.4 Minimum efficient scale | 162 | ||
| Box 9.5 Fashion cycles | 164 | ||
| Summary | 165 | ||
| Review questions | 166 | ||
| 10 Revenue and profit | 167 | ||
| 10.1 Revenue | 167 | ||
| 10.2 Profit maximisation | 172 | ||
| Box 10.1 Costs, revenue and profits | 171 | ||
| Box 10.2 Selling ice cream when I was a student | 174 | ||
| Box 10.3 Monarch’s turbulence | 175 | ||
| Summary | 177 | ||
| Review questions | 177 | ||
| Additional Part D case studies on the Economics for Business student website | 178 | ||
| Websites relevant to Part D | 178 | ||
| Part E SUPPLY: SHORT-RUN DECISION MAKING BY FIRMS | 180 | ||
| 11 Profit maximisation under perfect competition and monopoly | 182 | ||
| 11.1 Alternative market structures | 182 | ||
| 11.2 Perfect competition | 187 | ||
| 11.3 Monopoly | 191 | ||
| 11.4 Potential competition or potential monopoly? The theory of contestable markets | 196 | ||
| Box 11.1 A fast food race to the bottom | 186 | ||
| Box 11.2 E-commerce | 192 | ||
| Box 11.3 Premier league football: the Sky is the limit | 197 | ||
| Box 11.4 ‘It could be you’ | 198 | ||
| Summary | 200 | ||
| Review questions | 200 | ||
| 12 Profit maximisation under imperfect competition | 202 | ||
| 12.1 Monopolistic competition | 202 | ||
| 12.2 Oligopoly | 205 | ||
| 12.3 Game theory | 216 | ||
| Box 12.1 OPEC | 208 | ||
| Box 12.2 Oligopoly and oligopsony | 212 | ||
| Box 12.3 The prisoners’ dilemma | 218 | ||
| Box 12.4 The Hunger Games | 222 | ||
| Summary | 222 | ||
| Review questions | 223 | ||
| 13 Alternative theories of the firm | 225 | ||
| 13.1 Problems with traditional theory | 225 | ||
| 13.2 Behavioural economics of the firm | 227 | ||
| 13.3 Alternative maximising theories | 228 | ||
| 13.4 Multiple aims | 234 | ||
| Box 13.1 How firms increase profits by understanding ‘irrational’ consumers | 229 | ||
| Box 13.2 In search of long-run profits | 231 | ||
| Box 13.3 Stakeholder power | 235 | ||
| Summary | 236 | ||
| Review questions | 237 | ||
| Additional Part E case studies on the Economics for Business student website | 237 | ||
| Websites relevant to Part E | 238 | ||
| 14 An introduction to business strategy | 242 | ||
| 14.1 What is strategy? | 243 | ||
| 14.2 Strategic analysis | 246 | ||
| 14.3 Strategic choice | 251 | ||
| 14.4 Business strategy in a global economy | 253 | ||
| 14.5 Strategy: evaluation and implementation | 255 | ||
| Box 14.1 Business strategy the Samsung way | 244 | ||
| Box 14.2 Hybrid strategy | 253 | ||
| Summary | 256 | ||
| Review questions | 256 | ||
| Part F SUPPLY: ALTERNATIVE STRATEGIES | 240 | ||
| 15 Growth strategy | 257 | ||
| 15.1 Growth and profitability | 257 | ||
| 15.2 Constraints on growth | 258 | ||
| 15.3 Alternative growth strategies | 260 | ||
| 15.4 Internal growth | 261 | ||
| 15.5 External growth through merger | 264 | ||
| 15.6 External growth through strategic alliance | 269 | ||
| 15.7 Explaining external firm growth: a transaction costs approach | 271 | ||
| Box 15.1 Global merger activity | 266 | ||
| Box 15.2 How many firms does it take to make an iPhone? | 272 | ||
| Box 15.3 The day the world stopped | 274 | ||
| Summary | 276 | ||
| Review questions | 276 | ||
| 16 The small-firm sector | 277 | ||
| 16.1 Defining the small-firm sector | 277 | ||
| 16.2 The survival, growth and failure of small businesses | 282 | ||
| 16.3 Government assistance and the small firm | 286 | ||
| Box 16.1 Capturing global entrepreneurial spirit | 280 | ||
| Box 16.2 Hotel Chocolat | 285 | ||
| Summary | 289 | ||
| Review questions | 289 | ||
| 17 Pricing strategy | 290 | ||
| 17.1 Pricing and market structure | 291 | ||
| 17.2 Alternative pricing strategies | 292 | ||
| 17.3 Price discrimination | 294 | ||
| 17.4 Multiple product pricing | 304 | ||
| 17.5 Transfer pricing | 305 | ||
| 17.6 Pricing and the product life cycle | 307 | ||
| Box 17.1 Online personalised pricing | 296 | ||
| Box 17.2 A quantity discount pricing strategy | 300 | ||
| Box 17.3 Selling goods separately or together? The impact of bundling | 306 | ||
| Summary | 309 | ||
| Review questions | 309 | ||
| Additional Part F case studies on the Economics For Business student website | 310 | ||
| Websites Relevant to Part F | 310 | ||
| Part G THE FIRM IN THE FACTOR MARKET | 312 | ||
| 18 Labour markets, wages and industrial relations | 314 | ||
| 18.1 Market-determined wage rates and employment | 314 | ||
| 18.2 Power in the labour market | 319 | ||
| 18.3 Low pay and discrimination | 326 | ||
| 18.4 The flexible firm and the market for labour | 334 | ||
| Box 18.1 What do post, airlines, bins, buses and universities have in common? | 324 | ||
| Box 18.2 UK tax credits | 330 | ||
| Box 18.3 New ways of working | 336 | ||
| Summary | 338 | ||
| Review questions | 339 | ||
| 19 Investment and the employment of capital | 340 | ||
| 19.1 The pricing of capital and capital services | 340 | ||
| 19.2 The demand for and supply of capital services | 342 | ||
| 19.3 Investment appraisal | 344 | ||
| 19.4 Financing investment | 349 | ||
| 19.5 The stock market | 356 | ||
| Box 19.1 Investing in roads | 346 | ||
| Box 19.2 The ratios to measure success | 350 | ||
| Box 19.3 Financing innovation | 354 | ||
| Summary | 359 | ||
| Review questions | 359 | ||
| Additional Part G case studies on the Economics for Business student website | 360 | ||
| Websites relevant to Part G | 360 | ||
| Part H THE RELATIONSHIP BETWEEN GOVERNMENT AND BUSINESS | 362 | ||
| 20 Reasons for government intervention in the market | 364 | ||
| 20.1 Markets and the role of government | 364 | ||
| 20.2 Types of market failure | 365 | ||
| 20.3 Government intervention in the market | 376 | ||
| 20.4 The case for less government intervention | 381 | ||
| 20.5 Firms and social responsibility | 382 | ||
| Box 20.1 Can the market provide adequate protection for the environment? | 370 | ||
| Box 20.2 A commons solution | 375 | ||
| Box 20.3 Deadweight loss from taxes on goods and services | 379 | ||
| Box 20.4 The body shop | 387 | ||
| Summary | 388 | ||
| Review questions | 389 | ||
| 21 Government and the firm | 390 | ||
| 21.1 Competition policy | 390 | ||
| 21.2 Policies towards research and development (R&D) | 399 | ||
| 21.3 Policies towards training | 401 | ||
| Box 21.1 Expensive chips or are they? | 395 | ||
| Box 21.2 The R&D scoreboard | 402 | ||
| Box 21.3 The apprenticeship levy | 408 | ||
| Summary | 409 | ||
| Review questions | 409 | ||
| 22 Government and the market | 410 | ||
| 22.1 Environmental policy | 410 | ||
| 22.2 Transport policy | 423 | ||
| 22.3 Privatisation and regulation | 430 | ||
| Box 22.1 A stern rebuke about climate change inaction | 412 | ||
| Box 22.2 Trading our way out of climate change | 418 | ||
| Box 22.3 Road pricing in Singapore | 429 | ||
| Box 22.4 The right track to reform? | 432 | ||
| Summary | 436 | ||
| Review questions | 437 | ||
| Additional Part H case studies on the Economics for Business student website | 438 | ||
| Websites relevant to Part H | 438 | ||
| Part I BUSINESS IN THE INTERNATIONAL ENVIRONMENT | 440 | ||
| 23 Globalisation and multinational business | 443 | ||
| 23.1 Globalisation: setting the scene | 443 | ||
| 23.2 What is a multinational corporation? | 446 | ||
| 23.3 Trends in multinational investment | 448 | ||
| 23.4 Why do businesses go multinational? | 453 | ||
| 23.5 The advantages of MNC investment for the host state | 457 | ||
| 23.6 The disadvantages of MNC investment for the host state | 459 | ||
| 23.7 Multinational corporations and developing economies | 460 | ||
| Box 23.1 M&As and greenfield FDI | 450 | ||
| Box 23.2 Attracting foreign investment | 458 | ||
| Box 23.3 Grocers go shopping in the Eastern aisle | 463 | ||
| Summary | 464 | ||
| Review questions | 464 | ||
| 24 International trade | 465 | ||
| 24.1 Trading patterns | 465 | ||
| 24.2 The advantages of trade | 469 | ||
| 24.3 Arguments for restricting trade | 472 | ||
| 24.4 The world trading system and the WTO | 477 | ||
| Box 24.1 Strategic trade theory | 474 | ||
| Box 24.2 Giving trade a bad name | 476 | ||
| Box 24.3 The DOHA development agenda | 478 | ||
| Summary | 479 | ||
| Review questions | 480 | ||
| 25 Trading blocs | 482 | ||
| 25.1 Preferential trading | 483 | ||
| 25.2 Preferential trading in practice | 484 | ||
| 25.3 The European Union | 486 | ||
| 25.4 The UK and Brexit | 490 | ||
| Box 25.1 Features of the European single market | 488 | ||
| Box 25.2 The single market scoreboard | 489 | ||
| Summary | 493 | ||
| Review questions | 494 | ||
| Additional Part I case studies on the Economics for Business student website | 494 | ||
| Websites relevant to Part I | 494 | ||
| Part J THE MACROECONOMIC ENVIRONMENT | 496 | ||
| 26 The macroeconomic environment of business | 499 | ||
| 26.1 Introduction to the macroeconomic environment | 500 | ||
| 26.2 Economic volatility and the business cycle | 506 | ||
| 26.3 The circular flow of income | 511 | ||
| 26.4 Unemployment | 514 | ||
| 26.5 Inflation | 520 | ||
| 26.6 Long-term economic growth | 526 | ||
| Box 26.1 Output gaps | 508 | ||
| Box 26.2 The duration of unemployment | 518 | ||
| Box 26.3 Output gaps and inflation | 524 | ||
| Box 26.4 The UK’s stock of human capital | 528 | ||
| Summary | 531 | ||
| Review questions | 532 | ||
| Appendix1: Appendix: Measuring national income and output | 533 | ||
| Summary to appendix | 536 | ||
| Review questions to appendix | 536 | ||
| 27 The balance of payments and exchange rates | 537 | ||
| 27.1 The balance of payments account | 537 | ||
| 27.2 The exchange rate | 541 | ||
| 27.3 Exchange rates and the balance of payments | 546 | ||
| 27.4 Fixed versus floating exchange rates | 548 | ||
| Box 27.1 Nominal and real exchange rates | 543 | ||
| Box 27.2 Dealing in foreign exchange | 546 | ||
| Box 27.3 The importance of international financial movements | 547 | ||
| Box 27.4 The euro/dollar see-saw | 550 | ||
| Summary | 553 | ||
| Review questions | 554 | ||
| 28 The financial system, money and interest rates | 555 | ||
| 28.1 The meaning and functions of money | 556 | ||
| 28.2 The financial system | 557 | ||
| 28.3 The supply of money | 573 | ||
| 28.4 The demand for money | 581 | ||
| 28.5 Equilibrium | 583 | ||
| 28.6 Money, aggregate demand and inflation | 585 | ||
| Box 28.1 Financial intermediation | 558 | ||
| Box 28.2 Growth of banks’ balance sheets | 563 | ||
| Box 28.3 Residential mortgages and securitisation | 566 | ||
| Box 28.4 Minsky’s financial instability hypothesis | 581 | ||
| Summary | 587 | ||
| Review questions | 589 | ||
| 29 Business activity, unemployment and inflation | 590 | ||
| 29.1 The simple Keynesian model of business activity | 591 | ||
| 29.2 Alternative perspectives on aggregate supply | 596 | ||
| 29.3 Output, unemployment and inflation | 601 | ||
| 29.4 Inflation rate targeting and unemployment | 609 | ||
| 29.5 The volatility of private-sector spending | 611 | ||
| Box 29.1 Short-run aggregate supply | 599 | ||
| Box 29.2 The accelerationist hypothesis | 607 | ||
| Box 29.3 Sentiment and spending | 618 | ||
| Summary | 619 | ||
| Review questions | 621 | ||
| Additional Part J case studies on the Economics for Business student website | 622 | ||
| Websites relevant to Part J | 623 | ||
| Part K MACROECONOMIC POLICY | 624 | ||
| 30 Demand-side policy | 626 | ||
| 30.1 Fiscal policy and the public finances | 626 | ||
| 30.2 The use of fiscal policy | 631 | ||
| 30.3 Monetary policy | 637 | ||
| 30.4 Attitudes towards demand management | 643 | ||
| Box 30.1 The financial crisis and UK fiscal policy | 632 | ||
| Box 30.2 The evolving fiscal frameworks in the European Union | 634 | ||
| Box 30.3 The daily operation of monetary policy | 641 | ||
| Box 30.4 Quantitative easing | 644 | ||
| Box 30.5 Monetary policy in the Eurozone | 646 | ||
| Summary | 649 | ||
| Review questions | 650 | ||
| 31 Supply-side policy | 651 | ||
| 31.1 Supply-side problems | 651 | ||
| 31.2 Market-orientated supply-side policies | 659 | ||
| 31.3 Interventionist supply-side policies | 662 | ||
| 31.4 Regional policy | 666 | ||
| Box 31.1 Measuring labour productivity | 654 | ||
| Box 31.2 Getting intensive with capital | 656 | ||
| Box 31.3 Public funding of apprenticeships | 664 | ||
| Summary | 669 | ||
| Review questions | 670 | ||
| 32 International economic policy | 671 | ||
| 32.1 Global interdependence | 671 | ||
| 32.2 International harmonisation of economic policies | 673 | ||
| 32.3 European economic and monetary union | 675 | ||
| 32.4 Alternative policies for achieving currency stability | 683 | ||
| Box 32.1 Trade imbalances in the USA and China | 674 | ||
| Box 32.2 Optimal currency areas | 679 | ||
| Box 32.3 The Tobin tax | 686 | ||
| Summary | 688 | ||
| Review questions | 689 | ||
| Additional Part K case studies on the Economics for Business student website | 689 | ||
| Websites relevant to Part K | 690 | ||
| Web appendix | W:1 | ||
| Key ideas | K:1 | ||
| Glossary | G:1 | ||
| Index | I:1 | ||
| Back Cover | Back Cover |