Economics for Business (7^th Ed.)

This new edition of Economics for Business uses up-to-date case studies to examine the key issues facing the business world today. Looking at everything from the impact of the financial crisis to the operation of individual business, the 7th edition illustrates how economic theory relates to real business issues in a clear, accessible and engaging way designed to help students excel.

Looking for economics in action? Search online for the Sloman Economics News Site, a blog that’s updated several times a week with current affairs and topical stories, all linked to your textbook so you can explore the background to the issues more deeply.

John Sloman was Director of the Economics Network from its foundation in 1999 until 2012, and is now Visiting Fellow at the University of Bristol where the Network is based. John is also Visiting Professor at the University of the West of England, Bristol.

Dean Garratt is Principal Teaching Fellow in the Department of Economics at the University of Warwick.

Jon Guest is a National Teaching Fellow of the Higher Education Academy and a Principal Lecturer in the School of Economics, Finance and Accountancy at Coventry University. Jon is also an Associate of the Economics Network and a Lecturer on economics courses delivered to departments across the UK government.

Elizabeth Jones is a Principal Teaching Fellow and the Dean of Students in the Economics Department at the University of Warwick. Elizabeth is also a Lecturer on economics courses non-economists delivered to departments across the UK government.

About the authors

Custom publishing

Preface

Publisher’s acknowledgements

Part A BUSINESS AND ECONOMICS

1 The business environment and business economics

1.1 The business environment

1.2 The structure of industry

1.3 The determinants of business performance

Box 1.1 A perfect partnership

Box 1.2 The biotechnology industry

Summary

Review questions

2 Economics and the world of business

2.1 What do economists study?

2.2 Business economics: the macroeconomic environment

2.3 Business economics: microeconomic choices

Box 2.1 Looking at macroeconomic data

Box 2.2 What, how and for whom

Box 2.3 The opportunity costs of studying economics

Summary

Review questions

Appendix: Some techniques of economic analysis

Summary to appendix

Review questions to appendix

3 Business organisations

3.1 The nature of firms

3.2 The firm as a legal entity

3.3 The internal organisation of the firm

Box 3.1 Exploiting asymmetric information

Box 3.2 Managers and performance

Box 3.3 The changing nature of business

Summary

Review questions

Part end – additional case studies and relevant websites

Part B BUSINESS AND MARKETS

4 The working of competitive markets

4.1 Business in a competitive market

4.2 Demand

4.3 Supply

4.4 Price and output determination

Box 4.1 UK house prices

Box 4.2 Stock market prices

Box 4.3 Controlling prices

Summary

Review questions

5 Business in a market environment

5.1 Price elasticity of demand

5.2 The importance of price elasticity of demand to business decision making

5.3 Other elasticities

5.4 The time dimension of market adjustment

5.5 Dealing with uncertainty

Box 5.1 The measurement of elasticity

Box 5.2 Elasticity and the incidence of tax

Box 5.3 Adjusting to oil price shocks

Box 5.4 Don’t shoot the speculator

Summary

Review questions

Part end – additional case studies and relevant websites

Part C BACKGROUND TO DEMAND

6 Demand and the consumer

6.1 Marginal utility theory

6.2 Demand under conditions of risk and uncertainty

6.3 The characteristics approach to analysing consumer demand

Box 6.1 Calculating consumer surplus

Box 6.2 The marginal utility revolution: Jevons, Menger, Walras

Box 6.3 Adverse selection in the insurance market

Box 6.4 Rogue traders

Summary

Review questions

7 Demand and the firm

7.1 Estimating demand functions

7.2 Forecasting demand

Box 7.1 The demand for lamb

Summary

Review questions

8 Products, marketing and advertising

8.1 Product differentiation

8.2 Marketing the product

8.3 Advertising

Box 8.1 The battle of the brands

Box 8.2 Advertising and the long run

Summary

Review questions

Part end – additional case studies and relevant websites

Part D BACKGROUND TO SUPPLY

9 Costs of production

9.1 The meaning of costs

9.2 Production in the short run

9.3 Costs in the short run

9.4 Production in the long run

9.5 Costs in the long run

Box 9.1 The fallacy of using historic costs

Box 9.2 How vulnerable are you?

Box 9.3 UK competitiveness: moving to the next stage

Box 9.4 Minimum efficient scale

Box 9.5 Fashion cycles

Summary

Review questions

10 Revenue and profit

10.1 Revenue

10.2 Profit maximisation

Box 10.1 Costs, revenue and profits

Box 10.2 Opportunity cost of capital in practice

Box 10.3 Selling ice cream when I was a student

Summary

Review questions

Part end – additional case studies and relevant websites

Part E SUPPLY: SHORT-RUN PROFIT MAXIMISATION

11 Profit maximisation under perfect competition and monopoly

11.1 Alternative market structures

11.2 Perfect competition

11.3 Monopoly

11.4 Potential competition or potential monopoly? The theory of contestable markets

Box 11.1 Concentration ratios

Box 11.2 E-commerce

Box 11.3 Windows cleaning

Box 11.4 ‘It could be you’

Summary

Review questions

12 Profit maximisation under imperfect competition

12.1 Monopolistic competition

12.2 Oligopoly

12.3 Game theory

Box 12.1 Eating out in Britain

Box 12.2 Oligopolies: the good, the bad and the ugly

Box 12.3 The prisoners’ dilemma

Box 12.4 The Hunger Games

Summary

Review questions

Part end – additional case studies and relevant websites

Part F SUPPLY: ALTERNATIVE STRATEGIES

13 An introduction to business strategy

13.1 What is strategy?

13.2 Strategic analysis

13.3 Strategic choice

13.4 Business strategy in a global economy

13.5 Strategy: evaluation and implementation

Box 13.1 Business strategy the Samsung way

Box 13.2 Hybrid strategy

Summary

Review questions

14 Alternative theories of the firm

14.1 Problems with traditional theory

14.2 Alternative maximising theories

14.3 Multiple aims

Box 14.1 In search of long-run profits

Box 14.2 Stakeholder power

Summary

Review questions

15 Growth strategy

15.1 Growth and profitability

15.2 Constraints on growth

15.3 Alternative growth strategies

15.4 Internal growth

15.5 External growth through merger

15.6 External growth through strategic alliance

15.7 Explaining external firm growth: a transaction costs approach

Box 15.1 Global merger activity

Box 15.2 How many firms does it take to make an iPhone?

Box 15.3 The day the world stopped

Summary

Review questions

16 The small-firm sector

16.1 Defining the small-firm sector

16.2 The survival, growth and failure of small businesses

16.3 Government assistance and the small firm

Box 16.1 Capturing global entrepreneurial spirit

Box 16.2 Hotel Chocolat

Summary

Review questions

17 Pricing strategy

17.1 Pricing and market structure

17.2 Alternative pricing strategies

17.3 Price discrimination

17.4 Multiple product pricing

17.5 Transfer pricing

17.6 Pricing and the product life cycle

Box 17.1 Easy pricing

Box 17.2 A quantity discount pricing strategy

Box 17.3 How do European companies set prices?

Summary

Review questions

Part end – additional case studies and relevant websites

PART G THE FIRM IN THE FACTOR MARKET

18 Labour markets, wages and industrial relations

18.1 Market-determined wage rates and employment

18.2 Power in the labour market

18.3 Low pay and discrimination

18.4 The flexible firm and the market for labour

Box 18.1 ‘Telecommuters’

Box 18.2 Winters of discontent

Box 18.3 The Internet and labour mobility

Summary

Review questions

19 Investment and the employment of capital

19.1 The pricing of capital and capital services

19.2 The demand for and supply of capital services

19.3 Investment appraisal

19.4 Financing investment

19.5 The stock market

Box 19.1 Investing in roads

Box 19.2 The ratios to measure success

Box 19.3 Financing innovation

Summary

Review questions

Part end – additional case studies and relevant websites

Part H THE RELATIONSHIP BETWEEN GOVERNMENT AND BUSINESS

20 Reasons for government intervention in the market

20.1 Markets and the role of government

20.2 Types of market failure

20.3 Government intervention in the market

20.4 The case for less government intervention

20.5 Firms and social responsibility

Box 20.1 Can the market provide adequate protection for the environment?

Box 20.2 The tragedy of the commons

Box 20.3 Deadweight loss from taxes on goods and services

Box 20.4 The Body Shop

Summary

Review questions

21 Government and the firm

21.1 Competition policy

21.2 Policies towards research and development (R&D)

21.3 Policies towards training

Box 21.1 From paper envelopes to canned mushrooms: the umpire strikes back

Box 21.2 The R&D Scoreboard

Box 21.3 Radical changes to apprenticeships

Summary

Review questions

22 Government and the market

22.1 Environmental policy

22.2 Transport policy

22.3 Privatisation and regulation

Box 22.1 A Stern rebuke about climate change inaction

Box 22.2 Trading our way out of climate change

Box 22.3 Road pricing in Singapore

Box 22.4 The right track to reform?

Summary

Review questions

Part end – additional case studies and relevant websites

Part I BUSINESS IN THE INTERNATIONAL ENVIRONMENT

23 Globalisation and multinational business

23.1 Globalisation: setting the scene

23.2 What is a multinational corporation?

23.3 Trends in multinational investment

23.4 Why do businesses go multinational?

23.5 The advantages of MNC investment for the host state

23.6 The disadvantages of MNC investment for the host state

23.7 Multinational corporations and developing economies

Box 23.1 M&As and greenfield FDI

Box 23.2 Location. Location. Location.

Box 23.3 Grocers go global

Summary

Review questions

24 International trade

24.1 Trading patterns

24.2 The advantages of trade

24.3 Arguments for restricting trade

24.4 The world trading system and the WTO

Box 24.1 Strategic trade theory

Box 24.2 Giving trade a bad name

Box 24.3 The Doha Development Agenda

Summary

Review questions

25 Trading blocs

25.1 Preferential trading

25.2 Preferential trading in practice

25.3 The European Union

Box 25.1 Beyond bananas

Box 25.2 The Internal Market Scoreboard

Summary

Review questions

Part end – additional case studies and relevant websites

Part J THE MACROECONOMIC ENVIRONMENT

26 The macroeconomic environment of business

26.1 Introduction to the macroeconomic environment

26.2 Economic growth

26.3 Unemployment

26.4 Inflation

26.5 The business cycle and key macroeconomic objectives

26.6 The circular flow of income

Box 26.1 Output gaps

Box 26.2 The duration of unemployment

Box 26.3 Inflation or deflation

Summary

Review questions

Appendix: Measuring national income and output

Summary to appendix

Review questions to appendix

27 The balance of payments and exchange rates

27.1 The balance of payments account

27.2 The exchange rate

27.3 Exchange rates and the balance of payments

27.4 Fixed versus floating exchange rates

Box 27.1 Nominal and real exchange rates

Box 27.2 Dealing in foreign exchange

Box 27.3 The importance of international financial movements

Box 27.4 The euro/dollar seesaw

Summary

Review questions

28 Banking, money and interest rates

28.1 The meaning and functions of money

28.2 The financial system

28.3 The supply of money

28.4 The demand for money

28.5 Equilibrium

Box 28.1 Financial intermediation

Box 28.2 Growth of banks’ balance sheets

Box 28.3 Residential mortgages and securitisation

Box 28.4 Credit, money and Minsky’s financial instability hypothesis

Summary

Review questions

29 Business activity, employment and inflation

29.1 The simple Keynesian model of business activity

29.2 Aggregate demand, output and inflation

29.3 Money, aggregate demand and inflation

29.4 The relationship between inflation and unemployment: the short run

29.5 Inflation rate targeting and unemployment

29.6 Business cycles

Box 29.1 Mind the gap

Box 29.2 Household sector balance sheets

Summary

Review questions

Part end – additional case studies and relevant websites

Part K MACROECONOMIC POLICY

30 Demand-side policy

30.1 Fiscal policy

30.2 Monetary policy

30.3 Attitudes towards demand management

Box 30.1 The financial crisis and the UK fiscal policy yo-yo

Box 30.2 The evolving fiscal frameworks in the UK and Eurozone

Box 30.3 The daily operation of monetary policy

Box 30.4 Quantitative easing

Box 30.5 Monetary policy in the eurozone

Summary

Review questions

31 Supply-side policy

31.1 Supply-side problems

31.2 Market-orientated supply-side policies

31.3 Interventionist supply-side policies

31.4 Regional policy

Box 31.1 Getting intensive with physical capital

Box 31.2 UK human capital

Box 31.3 Labour productivity

Box 31.4 EU regional policy

Summary

Review questions

32 International economic policy

32.1 Global interdependence

32.2 International harmonisation of economic policies

32.3 European economic and monetary union

32.4 Alternative policies for achieving currency stability

Box 32.1 Doctor, the world has caught a cold!

Box 32.2 Optimal currency areas

Box 32.3 The Tobin tax

Summary

Review questions

Part end – additional case studies and relevant websites

Web appendix

Key ideas

Glossary

Index