Andrew Gillespie V *

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1 Andrew Gillespie V *

2 New to this edition xvii How to use this book ^ xviii Online Resource Centre > xx Acknowledgements Preface xxii xxiii 2 What is an economy? 3 Why all business managers should want to be economists 4 Business as a transformation process 5 Classifying production 10 Sectors of the economy 11 Business as an open system 13 PESTEL analysis 13 Stakeholders 1? The economic environment 18 Microeconomics and macroeconomics 20 Current issues , ONE STEP FURTHER ;, 24 2 Thinking like an economist "~~~~~~ ~ 2G 2? What does an economist do? 2? Economic models 39 The marginal condition 42 Rational decision-making 43 Normative and positive economics 44 Distinguishing fairness and efficiency 46 Distinguishing cause and effect 46 Are economists scientists? 48 Why do economists disagree?

3 Detailed contents ONE STEP FURTHER The fundamental economic problems CASE.STUDY Economic resources Scarcity and choice The production possibility frontier (PPF) Economic growth The output gap The three fundamental economic questions The free market ' The planned (or command) economy The mixed economy ONE STEP FURTHER ? ? ? 7? Demand?9 80, 8 0 Understanding demand ' 81 Marketing and demand 82 Price and demand 84 Consumer surplus 88 To what extent is a change in price likely to affect demand for products? 89 Price and revenue 94 How does the priceelasticity of demand vary along a demand curve? 97 Apart from the price, what else can affect the demand for products? 102 Shifts in demand 103 How might a fall in demand affect a business? 104 The income elasticity of demand ' 105 The cross-price elasticity of demand 109 Other forms of elasticity of demand 112 How much should you care if you lose one of your customers? 113 The demand for a business and the market demand

4 Detailed contents xi Costs and revenues Profits The short run and long run Types of costs v Average and marginal costs, The law of diminishing returns and marginal costs The relationship between average and marginal costs Analysing average costs Internal economies of scale Internal diseconomies of scale The minimum efficient scale External economies and diseconomies of scale Problems reducing costs Revenue Determining the profit-maximizing price and output the marginal condition Measuring the profits or losses made the average condition Producing in the short run the shutdown point Contribution Producing in the long run the break-even point « Supply The supply curve Producer surplus '( Shifts in supply versus movements along the supply curve The importance of labour productivity to supply ' The impact of lean production on supply The price elasticity of supply The industry supply curve Joint supply Government influences on supply conditions IS]

5 XII Detailed contents ? Markets 178 ] Reaching the equilibrium price and quantity in a market 180 What happens if demand conditions change? 184 Changes in supply conditions 189. Movements along versus shiftsjn supply and demand curves ' 191 The speed of market adjustment 193 Different market conditions 195 The effect ofan indirect tax on equilibrium 197 The effect of a subsidy on equilibrium 199 Market's and managers 199 Equilibrium, social welfare, and community surplus \ Market analysis: shares, currency, and labour markets The foreign exchange market 206 Reaching equilibrium in the currency markets ; 210 Shifts in demand for a currency 211 Shifts in supply of the currency to the foreign currency market 211 Changes in supply of and demand for a currency 212 Why do changes in exchange rates matter? 213 The McBurger index 215 Overcoming exchange rate problems 215 The impact ofan exchange rate change 216 Government intervention in the foreign currency markets 217 The euro 218 The market for shares ' 219 Why do changes in share prices matter? 222 The market for capital goods 223 Why is investment important? 226 The labour market 228 What determines the price of labour? 228 The wage elasticity of demand 230 The supply of labour 231 Equilibrium in the labour market 234

6 Detailed contents XIII Wage differences Changes in labour market conditions Trade unions Other factors influencing wages The equi-marginal condition ORGANIZATIONS ANO ECONOMICS Perfect competition, monopoly, and price discrimination 245 The concentration ratio Barriers to entry Types of market Price discrimination SHORTANSWER QUESTIONS Imperfect competition and alternative theories of the firm Monopolistic competition Oligopoly How to protect your success Contestability Market structure and profits Regulation of markets Business objectives Forms of growth Limitations of models that assume maximization Profits and risk 2?

7 XIV Detailed contents 11 Market failures and imperfections Monopoly power Externalities Cost-benefit analysis Property rights Merit and demerit goods Public goods Factor immobility Price instability Imperfect information Inequality Government intervention. Government failure s Problems with financing intervention The theory of the second best Failures, imperfection, and managers [ Macroeconomics The circular flow of income Measures of national income: gross domestic product versus gross national product Aggregate demand and aggregate supply Aggregate demand Aggregate supply Macroeconomic equilibrium: aggregate demand and supply Shifts in aggregate demand and aggregate supply The global downturn 2008 ' 1 33! ? Government macroeconomic policy Government economic policies Fiscal policy J362J

8 Detailed contents XV Monetary policy Fiscal versus monetary policies Demand-side policies Supply-side policies Supply-side versus demand-side policies Keynesian and monetarist views of the economy Problems for the government intervening in an economy, ' Macroeconomic issues: unemployment and inflation 391 Unemployment Inflation Keynesians and classical economists Can the government reduce unemployment below its natural rate? Macroeconomic issues: growth and balance of payments 421 Economic growth ; Balance of payments Conflicting government economic objectives Forecasting economic change International business and trade Why do countries trade?

9 XVI Detailed contents Free trade 452 The benefits of trade 454 Exports 458 The importance of clusters 460 Protectionism v 461 Trading blocs: free trade areas and customs unions 465 Organizations affecting world trade 467 The euro and the Eurozone crisis 469 Assessing overseas markets for international business 470 Entering overseas markets 471 The business implications of trade ' 472 Trade and the recession Glossary 475 References. 481 Index 482