Andrew Gillespie V *

Andrew Gillespie V *

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 22 22 23, 23 23 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? 49 51 51

Detailed contents ONE STEP FURTHER 51 52 52 3 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 53 54 54 55 56 5? 65 66 6? 69 72 75 76 7? 7? 78 78 78 4 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 114 114 114 115 115

Detailed contents xi 116 116 5 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 118 119 119 122 123 «124 125 128 129 134 138 139 140 141 142 147 149 150 152 152 153 154 154 154 154 6 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] 156 157 157 158 161 164 167 169 173 174 174 176 176 177

XII Detailed contents 177 177? Markets 178 ] 179 180 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 200 202 202 203 203 \ 203 8 Market analysis: shares, currency, and labour markets 204 205 205 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

Detailed contents XIII Wage differences Changes in labour market conditions Trade unions Other factors influencing wages The equi-marginal condition ORGANIZATIONS ANO ECONOMICS 235 237 239 240 241 242 242 243 243 244 244 9 Perfect competition, monopoly, and price discrimination 245 The concentration ratio Barriers to entry Types of market Price discrimination SHORTANSWER QUESTIONS 246 247 247 250 254 264 270 270 270 271 271 271 10 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?2 273 273 274 277 287 288 288 291 291 294 296 297 298 298 299 299 300 300

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 1 301 [ 302 302 303 306 310 312 313 313 314 316 320 324 327 327 328 328 328 329 329 329 330 330 12 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! 332 332 334 33? 340 341 352 356 356 358 360 360 360 361 361 13 Government macroeconomic policy Government economic policies Fiscal policy J362J 363 363 365 366

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, 372 380 381 381 386 387 388 388 388 389 '390 390 390 114 Macroeconomic issues: unemployment and inflation 391 Unemployment Inflation Keynesians and classical economists Can the government reduce unemployment below its natural rate? 392 393 394 404 415 417 418 418 419 419 420 420 15 Macroeconomic issues: growth and balance of payments 421 Economic growth ; Balance of payments Conflicting government economic objectives Forecasting economic change 422 422 422 434 443 444 445 445 446 446 447 447 16 International business and trade Why do countries trade? 448 449 449 450

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 472 473 473 473 474 474. 474 Glossary 475 References. 481 Index 482