Business Economics, Third Edition
By N. Gregory Mankiw, Mark P. Taylor, and Andrew Ashwin
Contents
About the authors vii
Preface viii
Acknowledgements x
Part 1 The Economic And Business Environment 1
1 What is business economics? 1
What is business economics? 1
Some key ideas in economics 4
2 Economics and business decision making 16
Economics: The science (or art) of decision making 16
Business decision making 19
Conclusion 23
3 the business environment 26
The transformation process 26
The PESTLE framework 30
Shareholder value and stakeholders 35
Conclusion 36
Part 2 Microeconomics: The Market System 41
4 Supply and demand: How markets work 41
The market forces of supply and demand 41
Markets and competition 43
Supply 44
Shifts versus movements along the
supply curve 46
Demand 49
Shifts versus movements along the demand curve 51
Demand and supply together 55
How prices allocate resources 69
5 Elasticity and its applications 74
Elasticity and its application 74
Price elasticity of supply 75
The price elasticity of demand 81
Other demand elasticities 88
Applications of supply and demand elasticity 98
6 taxes and subsidies 105
Introduction 105
Taxation and business 105
Conclusion 113
Part 3 Microeconomics: The Limitations Of Markets 119
7 Market failure 119
Introduction 119
Externalities 122
Using the demand curve to measure consumer surplus 123
Producer surplus 124
Government, business and externalities 131
Conclusion 135
8 The consumer and consumer behaviour 140
Introduction 140
Behavioural economics 151
Asymmetric information 153
Conclusion 156
PART 4 MICROECONOMICS: THE ECONOMICS OF FIRMS IN MARKETS 161
9 Costs and revenues in production 161
The costs of production 161
What are costs? 162
Production and costs 164
The various measures of cost 168
Conclusion 175
10 Business goals and behaviour 180
The goals of firms 180
Financial objectives 184
Break-even analysis 184
Non-financial objectives 193
11 Firm behaviour and the organization of industry 199
Isoquants and isocosts 199
Costs in the short run and in the long run 204
Economies and diseconomies of scale 207
12 Market structures: Perfect
competition 215
Competition and competitive markets 215
The supply curve in a competitive market 222
Conclusion: Behind the supply curve 227
13 Market structures: Monopoly 233
Introduction 233
The sources of monopoly power 235
How monopolies make production and pricing decisions 237
The welfare cost of monopoly 242
Price discrimination 244
Public policy towards monopolies 248
Conclusion: The prevalence of monopoly 251
14 Market structures: Imperfect or
monopolistic competition 257
The nature of monopolistic competition 257
Advertising and branding 261
Brand names 264
Contestable markets 265
Monopolistic competition and the welfare of society 266
15 Market structures: Oligopoly 271
Oligopoly 271
Interdependence, game theory and the
economics of competition 276
Public policies toward oligopolies 281
Conclusion 284
16 Corporate strategy and pricing policy 289
Introduction 289
Business strategy 289
Pricing strategies 297
Business forecasting 301
Sales forecasting 305
Qualitative data 310
PART 5 MICROECONOMICS: FACTOR MARKETS 315
17 Labour markets 315
The markets for the factors of production 315
The demand for labour 316
The supply of labour 321
The gig economy 325
The other factors of production: Land and capital 328
Imperfections in the labour market 331
The economics of discrimination 335
Conclusion 337
18 Financial markets 342
Sources of business finance 342
Financial institutions in the economy 346
Measuring the time value of money 349
Managing risk 351
Asset valuation 354
Savings and investments in the national income accounts 355
An overview of Islamic finance 360
Fintech 361
Conclusion 364
PART 6 INTRODUCTION TO MACROECONOMICS 369
19 The macroeconomic environment 369
Introduction 369
Key economic indicators 370
The components of GDP 373
Real versus nominal GDP 375
Inflation: Measuring the cost of living 377
Unemployment 381
The balance of payments 383
Conclusion 388
20 Aggregate demand and aggregate supply as a model to describe the economy 393
Introduction 393
Three key facts about economic fluctuations 394
Explaining short run economic fluctuations 395
The aggregate demand curve 397
The aggregate supply curve 401
Two causes of economic fluctuations 409
21 Government economic policy and the effect on business: Fiscal, monetary and supply side policy 417
Government economic policies 417
Monetary policy 418
The banking system 420
The central bank’s tools of monetary control 423
Fiscal policy 426
Supply side policies 433
How monetary policy influences aggregate demand 437
How fiscal policy influences aggregate demand 440
Conclusion 442
PART 7 GLOBAL BUSINESS AND ECONOMICS 447
22 The global economy 447
International trade 448
The principle of comparative advantage 452
The determinants of trade 455
The winners and losers from trade 456
Restrictions on trade 460
Criticisms of comparative advantage theory 467
Other theories of international trade 468
The prices for international transactions:
Real and nominal exchange rates 470
A model of exchange rate determination: Purchasing power parity 472
The single European market and the euro 475
Common currency areas and European monetary union 477
Fiscal policy and common currency areas 481
Brexit 484
Global business, culture and ethics 488
The costs and benefits of globalization 490
Business in emerging markets 492
Outsourcing 496
Foreign direct investment 497
23 Issues in global business and economics 502
The financial crisis 502
Austerity policies: Too far too quickly? 511
The productivity puzzle 515
Sustainability 518
Glossary 524
Index 531
Formulas 541