List of figures ............................................. xi
List of tables .............................................. xv
Series preface ............................................. xix
Preface .................................................... xxi
Guide to the book ......................................... xxix
1 INTRODUCTION TO ECONOMICS FOR BUSINESS ....................... 1
Introduction ................................................. 2
What is 'the economy'? ....................................... 2
How the economy impacts on business .......................... 5
The management of risk ....................................... 6
How changes in consumer incomes and spending affect
business ..................................................... 9
The impact of changes in interest rates on business ......... 11
Some key economic concepts that appear in this book ......... 13
Summary ..................................................... 15
2 QUANTITATIVE ANALYSIS FOR ECONOMISTS ........................ 19
Introduction ................................................ 20
An econometric approach ..................................... 21
Using diagrams and simple statistical relationships ......... 25
Making predictions .......................................... 31
Relating two variables ...................................... 33
Index numbers ............................................... 38
Share price indices ......................................... 44
Summary ..................................................... 45
3 HOW MARKETS WORK ............................................ 49
Introduction ................................................ 50
The nature of a market economy .............................. 50
The relationshin between nrine. demand and sunnlv ........... 59
Introduction ................................................ 50
The nature of a market economy .............................. 50
The relationship between price, demand and supply ........... 52
The construction of demand and supply curves ................ 55
Changes in the conditions of demand and supply .............. 60
How to measure elasticity of demand ......................... 69
The role of firms in the market ............................. 77
Summary ..................................................... 80
4 COSTS AND REVENUES .......................................... 85
Introduction ................................................ 86
The nature of cost-volume-profit analysis ................... 86
The average cost of production .............................. 92
Costs at different levels of output ......................... 99
Illustrating revenues ...................................... 101
Combining cost and revenue to illustrate profit ............ 103
A marginal approach to profit maximizing ................... 106
Summary .................................................... 114
5 DIFFERENT TYPES OF MARKET STRUCTURES ....................... 117
Introduction ............................................... 118
What is market structure? .................................. 118
Types of market structure .................................. 119
Perfect competition ........................................ 121
Monopoly ................................................... 124
Market structures in the real world ........................ 129
Price setting in the real world ............................ 138
Price setting in different market settings ................. 141
Allocative efficiency ...................................... 144
Summary .................................................... 146
6 BUSINESS STRATEGY IN AN ECONOMIC CONTEXT ................... 151
Introduction ............................................... 152
What business strategy involves ............................ 152
The ingredients of strategy ................................ 154
The criteria for an effective strategy ..................... 154
How an environmental analysis helps to determine the
suitability of a strategy .................................. 157
The nature of strategic vision, objectives, focus and
architecture ............................................... 159
Business strategy in an economic context ................... 163
Summary .................................................... 164
7 GOVERNMENT REGULATION AND COMPETITION ...................... 169
Introduction ............................................... 170
Government intervention .................................... 171
The government and the market .............................. 174
Creating a competitive environment ......................... 182
UK competition law ......................................... 183
Other forms of government regulation ....................... 187
Summary .................................................... 190
8 THE WIDER ROLE OF GOVERNMENT IN THE ШШш ECONOMY ............ 193
Introduction ............................................... 194
Government's multiple roles and policies ................... 194
The government as producer and employer .................... 195
The government as a stabilizer of the economy .............. 196
The government's role in encouraging competitive markets ... 202
The government's role in combating market failure .......... 203
The government's international role ........................ 203
The government as debt manager ............................. 206
The government and inequality .............................. 209
Industrial and regional policy ............................. 209
Macro-economic policy tools ................................ 213
Summary .................................................... 216
9 ECONOMIC IDEAS AND POLICY .................................. 221
Introduction ............................................... 222
The development of economic thinking ....................... 222
The classical economists ................................... 223
The Marxist economists ..................................... 225
The neoclassical economists ................................ 225
Keynesian economics ........................................ 229
The neoclassical consensus ................................. 233
The free market revival and monetarism ..................... 235
The Third Way' ............................................. 237
New ways of thinking about the economy ..................... 240
Summary .................................................... 244
10 ECONOMIC INDICATORS ........................................ 249
Introduction ............................................... 250
What are economic indicators? .............................. 250
Indicators that show the growth of the economy ............. 251
Employment indicators ...................................... 262
Inflation indicators ....................................... 267
Population indicators ...................................... 273
The interest rate .......................................... 276
The exchange rate .......................................... 277
Summary .................................................... 277
11 THE INTERNATIONAL ECONOMY .................................. 281
Introduction ............................................... 282
Advantages of international trade .......................... 282
Comparative and absolute advantage ......................... 284
The UK as a trading nation ................................. 288
The balance of payments .................................... 288
The UK's main trading partners ............................. 291
The importance of trading blocs ............................ 291
The UK and the European Union .............................. 295
Exchange rates ............................................. 301
The euro ................................................... 307
Crisis in the Eurozone ..................................... 310
Terms of trade ............................................. 313
Summary .................................................... 314
12 THE ECONOMICS OF GLOBALIZATION ............................. 317
Introduction ............................................... 318
What is globalization? ..................................... 318
Who is involved in the globalization process? .............. 326
The economic institutions of globalization ................. 330
The nature of protectionism ................................ 334
Foreign direct investment .................................. 336
Strategies for entering global markets ..................... 339
Summary .................................................... 343
13 MONEY, BANKING AND FINANCE ................................. 347
Introduction ............................................... 348
The significance of the financial crisis ................... 348
The functions of money ..................................... 353
Commercial banks ........................................... 354
Central banks .............................................. 356
The creation of credit ..................................... 357
The supply of money ........................................ 360
Monetary policy and inflation .............................. 360
Summary .................................................... 366
14 GOVERNMENT FISCAL POUCY .................................... 369
What is fiscal policy? ..................................... 370
Government spending, taxes and borrowing ................... 371
Types of fiscal policy ..................................... 374
Types of taxation .......................................... 375
The impact of direct and indirect taxes .................... 378
The impact of government subsidies ......................... 381
Summary .................................................... 385
15 GREEN ECONOMICS ............................................ 389
Introduction ............................................... 390
The environmental challenge ................................ 390
Reappraising simple economic theory ........................ 391
Sustainable development .................................... 397
Different forms of capital ................................. 399
Cost-benefit analysis ...................................... 399
The sustainability spectrum ................................ 403
Taking a wider view ........................................ 404
International collaboration for the commons ................ 405
Ecological footprints ...................................... 408
Sustainable business models ................................ 409
Summary .................................................... 419
16 BUSINESS IN THE ECONOMY .................................... 423
Introduction ............................................... 424
Matching business strategy with the organizational
environment ................................................ 424
Uncertainty in the economic environment .................... 429
Institutional economics .................................... 434
The importance of competitive advantage .................... 437
The size of firms in the market ............................ 443
The growth of firms in the market .......................... 444
Economies of scale ......................................... 445
Summary .................................................... 450
17 FINANCIAL PLANNING AND INVESTMENT APPRAISAL ................ 455
Introduction ............................................... 456
What is investment? ........................................ 456
The payback method ......................................... 459
Discounted cash flow to find net present value ............. 460
Accounting rate of return .................................. 464
Sources of finance for a business .......................... 466
Summary .................................................... 471
Index ......................................................... 475
|
