Economics for Business, Ninth Edition PDF by John Sloman, Dean Garratt, Jon Guest and Elizabeth Jones

By

Economics for Business, Ninth Edition

John Sloman, Dean Garratt, Jon Guest and Elizabeth Jones

Economics for Business

Detailed contents

About the authors v

Preface xv

Publisher’s acknowledgements xxiii

Part A BUSINESS AND ECONOMICS

1 The business environment and business economics 4

1.1 The business environment 5

1.2 The structure of industry 11

1.3 The determinants of business performance 14

Box 1.1 A Lidl success story 6

Box 1.2 The biotechnology industry 9

Summary 15

Review questions 15

2 Economics and the world of business 16

2.1 What do economists study? 16

2.2 Business economics: microeconomic choices 18

2.3 Business economics: the macroeconomic environment 22

2.4 Techniques of economic analysis 25

Box 2.1 What, how and for whom? 20

Box 2.2 The opportunity costs of studying economics 22

Box 2.3 Looking at macroeconomic data 24

Summary 25

Review questions 26

3 Business organisations 27

3.1 The nature of firms 27

3.2 The firm as a legal entity 30

3.3 The internal organisation of the firm 33

Box 3.1 Exploiting asymmetric information 31

Box 3.2 Managers, pay and performance 34

Box 3.3 The changing nature of business 38

Summary 39

Review questions 39

Additional Part A case studies on the Economics for

Business student website 40

Websites relevant to Part A 40

Part B BUSINESS AND MARKETS

4 The working of competitive markets 44

4.1 Business in a competitive market 44

4.2 Demand 47

4.3 Supply 50

4.4 Price and output determination 53

Box 4.1 UK house prices 55

Box 4.2 Stock market prices 58

Box 4.3 Controlling prices 60

Summary 62

Review questions 62

5 Business in a market environment 64

5.1 Price elasticity of demand 65

5.2 The importance of price elasticity of demand to business decision making 67

5.3 Other elasticities 70

5.4 The time dimension of market adjustment 74

5.5 Dealing with uncertainty 79

Box 5.1 The measurement of elasticity 69

Box 5.2 Elasticity and the incidence of tax 72

Box 5.3 Adjusting to oil price shocks 76

Box 5.4 Bubble, bubble, toil and trouble 80

Summary 83

Review questions 84

Additional Part B case studies on the Economics for

Business student website 84

Websites relevant to Part B 85

Part C BACKGROUND TO DEMAND

6 Demand and the consumer 88

6.1 Marginal utility theory 89

6.2 Demand under conditions of risk and uncertainty 93

6.3 The characteristics approach to analysing

consumer demand 103

Box 6.1 Calculating consumer surplus 91

Box 6.2 The marginal utility revolution: Jevons,

Menger, Walras 92

Box 6.3 Adverse selection in the insurance market 100

Box 6.4 Dealing with moral hazard and adverse selection 101

Summary 108

Review questions 109

Web appendix in the case studies section of the

Economics for Business student website 110

7 Behavioural economics of the consumer 111

7.1 How does behavioural economics differ from

standard theory? 111

7.2 Framing and the reference point for decisions 115

7.3 Caring about the pay-offs to others 120

7.4 Government policy to influence behaviour 122

Box 7.1 Choice overload 114

Box 7.2 The endowment effect 116

Box 7.3 The best made plans 118

Box 7.4 A simple experiment to test for social

preferences 121

Summary 123

Review questions 124

8 Firms and the consumer 125

8.1 Estimating demand functions 126

8.2 Forecasting demand 129

8.3 Product differentiation 132

8.4 Marketing the product 133

8.5 Advertising 137

Box 8.1 The battle of the brands 134

Box 8.2 Different types of online advertising 140

Summary 141

Review questions 141

Additional Part C case studies on the Economics for

Business student website 142

Websites relevant to Part C 142

Part D BACKGROUND TO SUPPLY

9 Costs of production 146

9.1 The meaning of costs 146

9.2 Production in the short run 147

9.3 Costs in the short run 151

9.4 Production in the long run 155

9.5 Costs in the long run 161

Box 9.1 Should we ignore sunk costs? 148

Box 9.2 How vulnerable are you? 154

Box 9.3 Lights, camera, action 158

Box 9.4 Minimum efficient scale 162

Box 9.5 Fashion cycles 164

Summary 165

Review questions 166

10 Revenue and profit 167

10.1 Revenue 167

10.2 Profit maximisation 172

Box 10.1 Costs, revenue and profits 171

Box 10.2 Selling ice cream when I was a student 174

Box 10.3 Monarch’s turbulence 175

Summary 177

Review questions 177

Additional Part D case studies on the Economics for

Business student website 178

Websites relevant to Part D 178

Part E SUPPLY: SHORT-RUN DECISION

MAKING BY FIRMS

11 Profit maximisation under perfect competition and monopoly 182

11.1 Alternative market structures 182

11.2 Perfect competition 187

11.3 Monopoly 191

11.4 Potential competition or potential monopoly?

The theory of contestable markets 196

Box 11.1 A fast food race to the bottom 186

Box 11.2 E-commerce 192

Box 11.3 Premier league football: the Sky is

the limit 197

Box 11.4 ‘It could be you’ 198

Summary 200

Review questions 200

12 Profit maximisation under imperfect

competition 202

12.1 Monopolistic competition 202

12.2 Oligopoly 205

12.3 Game theory 216

Box 12.1 OPEC 208

Box 12.2 Oligopoly and oligopsony 212

Box 12.3 The prisoners’ dilemma 218

Box 12.4 The Hunger Games 222

Summary 222

Review questions 223

13 Alternative theories of the firm 225

13.1 Problems with traditional theory 225

13.2 Behavioural economics of the firm 227

13.3 Alternative maximising theories 228

13.4 Multiple aims 234

Box 13.1 How firms increase profits by understanding

‘irrational’ consumers 229

Box 13.2 Constraints on firms’ pricing 231

Box 13.3 Stakeholder power 235

Summary 236

Review questions 237

Additional Part E case studies on the Economics for

Business student website 237

Websites relevant to Part E 238

14 An introduction to business strategy 242

14.1 What is strategy? 243

14.2 Strategic analysis 246

14.3 Strategic choice 251

14.4 Business strategy in a global economy 253

14.5 Strategy: evaluation and implementation 255

Box 14.1 Business strategy the Samsung way 244

Box 14.2 Hybrid strategy 253

Summary 256

Review questions 256

15 Growth strategy 257

15.1 Growth and profitability 257

15.2 Constraints on growth 258

15.3 Alternative growth strategies 260

15.4 Internal growth 261

15.5 External growth through merger 264

15.6 External growth through strategic alliance 269

15.7 Explaining external firm growth: a transaction

costs approach 271

Box 15.1 Global merger activity 266

Box 15.2 How many firms does it take to make an iPhone? 272

Box 15.3 The day the world stopped 274

Summary 276

Review questions 276

16 The small-firm sector 277

16.1 Defining the small-firm sector 277

16.2 The survival, growth and failure of small businesses 282

16.3 Government assistance and the small firm 286

Box 16.1 Capturing global entrepreneurial spirit 280

Box 16.2 Hotel Chocolat 285

Summary 289

Review questions 289

17 Pricing strategy 290

17.1 Pricing and market structure 291

17.2 Alternative pricing strategies 292

17.3 Price discrimination 294

17.4 Multiple product pricing 304

17.5 Transfer pricing 305

17.6 Pricing and the product life cycle 307

Box 17.1 Personalised pricing in digital markets 296

Box 17.2 A quantity discount pricing strategy 300

Box 17.3 Selling goods separately or together?

The impact of bundling 306

Summary 309

Review questions 309

Additional Part F case studies on the Economics for

Business student website 310

Websites relevant to Part F 310

Part F SUPPLY: ALTERNATIVE STRATEGIES Part G THE FIRM IN THE FACTOR MARKET

18 Labour markets, wages and industrial relations 314

18.1 Market-determined wage rates and employment 314

18.2 Power in the labour market 319

18.3 Low pay and discrimination 326

18.4 The flexible firm and the market for labour 334

Box 18.1 What do post, airlines, bins, buses, rail, tube and

universities have in common? 324

Box 18.2 UK tax credits 330

Box 18.3 New ways of working 336

Summary 338

Review questions 339

19 Investment and the employment of capital 340

19.1 The pricing of capital and capital services 340

19.2 The demand for and supply of capital services 342

19.3 Investment appraisal 344

19.4 Financing investment 349

19.5 The stock market 356

Box 19.1 Investing in roads 346

Box 19.2 The ratios to measure success 350

Box 19.3 Financing innovation 354

Summary 359

Review questions 360

Additional Part G case studies on the Economics for

Business student website 360

Websites relevant to Part G 361

Part H THE RELATIONSHIP BETWEEN GOVERNMENT AND BUSINESS

20 Reasons for government intervention in the market 364

20.1 Markets and the role of government 364

20.2 Types of market failure 365

20.3 Government intervention in the market 376

20.4 The case for less government intervention 381

20.5 Firms and social responsibility 382

Box 20.1 Can the market provide adequate protection

for the environment? 370

Box 20.2 A commons solution 375

Box 20.3 Deadweight loss from taxes on goods and

services 379

Box 20.4 ESG scores 387

Summary 388

Review questions 389

21 Government and the firm 390

21.1 Competition policy 390

21.2 Policies towards research and

development (R&D) 399

21.3 Policies towards training 401

Box 21.1 Expensive chips or are they? 395

Box 21.2 The R&D scoreboard 402

Box 21.3 The Apprenticeship Levy 408

Summary 409

Review questions 409

22 Government and the market 410

22.1 Environmental policy 410

22.2 Transport policy 423

22.3 Privatisation and regulation 430

Box 22.1 The economics of biodiversity 412

Box 22.2 Placing a price on CO2 emissions 420

Box 22.3 Road pricing in Singapore 429

Box 22.4 The right track to reform? 432

Summary 436

Review questions 437

Additional Part H case studies on the Economics

for Business student website 438

Websites relevant to Part H 438

Part I BUSINESS IN THE INTERNATIONAL ENVIRONMENT

23 Globalisation and multinational business 443

23.1 Globalisation: setting the scene 443

23.2 What is a multinational corporation? 446

23.3 Trends in multinational investment 448

23.4 Why do businesses go multinational? 453

23.5 The advantages of MNC investment for the

host state 457

23.6 The disadvantages of MNC investment for the

host state 459

23.7 Multinational corporations and developing

economies 460

Box 23.1 M&As and greenfield FDI 450

Box 23.2 Attracting foreign investment 458

Box 23.3 Grocers go shopping in the Eastern aisle 463

Summary 464

Review questions 464

24 International trade 465

24.1 Trading patterns 465

24.2 The advantages of trade 469

24.3 Arguments for restricting trade 472

24.4 The world trading system and the WTO 477

Box 24.1 Strategic trade theory 474

Box 24.2 Giving trade a bad name 476

Box 24.3 The Doha development agenda 478

Summary 479

Review questions 480

25 Trading blocs 482

25.1 Preferential trading 483

25.2 Preferential trading in practice 484

25.3 The European Union 486

25.4 The UK and Brexit 490

Box 25.1 Features of the European single market 488

Box 25.2 The Single Market Scoreboard 489

Summary 493

Review questions 494

Additional Part I case studies on the Economics

for Business student website 494

Websites relevant to Part I 494

Part J THE MACROECONOMIC ENVIRONMENT

26 The macroeconomic environment of business 499

26.1 Introduction to the macroeconomic environment 500

26.2 Economic volatility and the business cycle 506

26.3 The circular flow of income 511

26.4 Unemployment 514

26.5 Inflation 520

26.6 Long-term economic growth 526

Box 26.1 Output gaps 508

Box 26.2 The duration of unemployment 518

Box 26.3 Output gaps and inflation 524

Box 26.4 The UK’s stock of human capital 528

Summary 531

Review questions 532

Appendix: Measuring national income and

output 533

Summary to appendix 536

Review questions to appendix 536

27 The balance of payments and exchange rates 537

27.1 The balance of payments account 537

27.2 The exchange rate 541

27.3 Exchange rates and the balance of payments 546

27.4 Fixed versus floating exchange rates 548

Box 27.1 Nominal and real exchange rates 543

Box 27.2 Dealing in foreign exchange 546

Box 27.3 The importance of international financial

movements 547

Box 27.4 The euro/dollar see-saw 550

Summary 553

Review questions 554

28 The financial system, money and interest rates 555

28.1 The meaning and functions of money 556

28.2 The financial system 557

28.3 The supply of money 573

28.4 The demand for money 581

28.5 Equilibrium 583

28.6 Money, aggregate demand and inflation 585

Box 28.1 Financial intermediation 558

Box 28.2 Growth of banks’ balance sheets 563

Box 28.3 Residential mortgages and securitisation 566

Box 28.4 Minsky’s financial instability hypothesis 581

Summary 587

Review questions 589

29 Business activity, unemployment and inflation 590

29.1 The simple Keynesian model of business activity 591

29.2 Alternative perspectives on aggregate supply 596

29.3 Output, unemployment and inflation 601

29.4 Inflation rate targeting and unemployment 609

29.5 The volatility of private-sector spending 611

Box 29.1 Short-run aggregate supply 599

Box 29.2 The accelerationist hypothesis 607

Box 29.3 Confidence and spending 618

Summary 619

Review questions 621

Additional Part J case studies on the Economics for

Business student website 622

Websites relevant to Part J 623

Part K MACROECONOMIC POLICY

30 Demand-side policy 626

30.1 Fiscal policy and the public finances 626

30.2 The use of fiscal policy 631

30.3 Monetary policy 637

30.4 Attitudes towards demand management 643

Box 30.1 The fiscal impulse 632

Box 30.2 The evolving fiscal frameworks in the

European Union 634

Box 30.3 The operation of monetary policy in the UK 641

Box 30.4 Quantitative easing 644

Box 30.5 Monetary policy in the eurozone 646

Summary 649

Review questions 650

31 Supply-side policy 651

31.1 Supply-side problems 651

31.2 Market-orientated supply-side policies 659

31.3 Interventionist supply-side policies 662

31.4 Regional policy 666

Box 31.1 Measuring labour productivity 654

Box 31.2 Getting intensive with capital 656

Box 31.3 Apprenticeships and the economic

arguments for intervention 664

Summary 669

Review questions 670

32 International economic policy 671

32.1 Global interdependence 671

32.2 International harmonisation of economic

policies 673

32.3 European economic and monetary union 675

32.4 Alternative policies for achieving currency stability 683

Box 32.1 Trade imbalances in the USA and China 674

Box 32.2 Optimal currency areas 679

Box 32.3 The Tobin tax 686

Summary 688

Review questions 689

Additional Part K case studies on the Economics for

Business student website 689

Websites relevant to Part K 690

Web appendix W:1

Key ideas K:1

Glossary G:1

Index I: 1

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