Economics for business : competition, macro-stability, and globalisation

643 Pages·4.693 MB·English

by  Dermot McAleese

mcaleese a/w 27/7/05 2:43 PM Page 1
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Dermot McAleese
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"I have used Economics for Businessas a key text on my Managerial Economics module in the Warwick MBA
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programme for a number of years. The book possesses the rare quality of being both accessible and rigorous. It is
comprehensive, yet admirably succinct. The new material on international issues - such as trade agreements, i
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currency crises and the Euro debate - in the latest edition will be greatly appreciated by teachers and students alike."
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Professor Robin Naylor, University of Warwick

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o third edition
"Economics for Business is an excellent text, which is very well written and demonstrates the wealth of knowledge
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possessed by its author."

Professor Steve Bradley, Lancaster University B Economics
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Specially tailored for a business-oriented audience, this text provides a complete introduction to economics for business n
for Business
programmes. With its non-technical and down-to-earth style this book will help make the economics module on your e
business or professional programme a more instructive and enjoyable experience. s
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Economics for Businessis especially suitable for MBA and other executive programmes, as well as for post-experience
conversion courses.
a M C Competition, Macro-stability
•FeaFtuulrl ecsoverage of central issues in business-oriented economics courses e.g. interest rates and determinants of nd Glo acro- ompe and Globalisation
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• eFoxcchuasnesg eo nra tthese. increased openness and globalisation of the economy. balisatio tability ition,
• Coverage of both macro and micro topics. n
• Strikes a balance between theory and application.
• Sets economic ideas in their historical and social context.
• New!Material on China in the WTO, deflation, Argentina’s currency crisis, the pros and cons of joining the Euro.
third
• New!Even more exercises and questions for discussion.
edition
Dermot McAleese is Whately Professor of Political Economy, and Dean of the Faculty of Business,
Economics and Social Studies, at Trinity College Dublin. He has served on the Board of the Central Bank
of Ireland and was visiting professor at the World Bank. He lectures on MBA and executive courses in
Trinity College and he is a member of the visiting faculty of the Irish Management Institute and of the M
ENPC School of International Management (Paris). He has written extensively on economic policy and c
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international economics.
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Third Edition
Economics
for Business
Competition, Macro-stability
and Globalisation
Dermot McAleese
Trinity College Dublin
Pearson Education Limited
Edinburgh Gate
Harlow
Essex CM20 2JE
England
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First published under the Prentice Hall Europe imprint 1997
Second edition 2001
Third edition published 2004
© Dermot McAleese 1997, 2004
The right of Dermot McAleese to be identified as author of this
work has been asserted by him in accordance with the Copyright, Designs
and Patents Act 1988.
All rights reserved. No part of this publication may be reproduced, stored in
a retrieval system, or transmitted in any form or by any means, electronic,
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All trademarks used herein are the property of their respective owners. The
use of any trademark in this text does not vest in the author or publisher any
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ISBN 0 273 68398 5
British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloguing-in-Publication Data
McAleese, Dermot.
Economics for business: competition, macro-stability, and globalisation / Dermot
McAleese.–– 3rd ed.
p. cm.
Includes bibliographical references and index.
ISBN 0-273-68398-5
1. Managerial economics. I. Title.
HD30.22.M29 2004
330’.024’658––dc22
2004043237
10 9 8 7 6 5 4 3 2
09 08 07 06 05
Typeset in 9.5/12pt Stone Serif by 25
Printed and bound in Great Britain by Ashford Colour Press Ltd, Gosport
The publisher’s policy is to use paper manufactured from sustainable forests.
Brief contents
List of boxes xiv
Preface to the third edition xvii
Acknowledgements xxi
1 The economic policy consensus 1
2 What makes nations grow? 13
Part I The market system and competition 43
3 The market system in action 47
4 Market demand and the pricing decision 72
5 The firm in a competitive market 95
6 The economics of market power 125
7 Competition policy, privatisation and regulation 155
8 Government intervention and the market system 180
9 Business and the environment 206
10 Hiring labour and the investment decision 227
Part II The macroeconomic framework 243
11 Aggregate supply, aggregate demand and the price level 246
12 Price stability and central banks 276
13 Understanding interest rates and monetary policy 305
14 Unemployment and the labour market 336
15 Fiscal po licy, budget deficits and government debt 370
16 Business fluctuations and forecasting 401
Part III The global economy 421
17 Foreign trade: patterns and policy 424
18 Capital flows and foreign investment 462
19 Labour migration 488
20 The balance of payments: what it is and why it matters 501
21 Coping with exchange rates 528
22 Exchange rate regimes and the euro 561
Index 595
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Contents
List of boxes xiv
Preface to the third edition xvii
Acknowledgements xxi
1 The economic policy consensus 1
Introduction 1
1.1 The economic policy consensus 2
1.2 Why policy changed 5
1.3 Implications for the future 6
1.4 Criticisms of the new consensus 7
1.5 Will the consensus last? 9
Summary 11
Questions for discussion 11
Exercises 11
Further reading 12
2 What makes nations grow? 13
Introduction 13
2.1 Trends in economic growth 14
2.2 Growth theories 17
2.3 Human welfare and sustainable growth 26
2.4 Policy prescriptions for growth 33
2.5 Conclusions 36
Summar y 37
Questions for discussion 38
Exercises 39
Further reading 40
Appendix2.1 The economics of the new economy 40
Part I The market system and competition
Introduction to Part I 44
3 The market system in action 47
Introduction 47
3.1 The market system 48
vii
Contents
3.2 The role of prices 53
3.3 Movements in demand and supply 56
3.4 The role of traders and arbitrage 61
3.5 The efficiency of the market system 63
3.6 The free market system in social context 65
3.7 Conclusions 67
Summary 68
Questions for discussion 69
Exercises 70
Further reading 71
4 Market demand and the pricing decision 72
Introduction 72
4.1 What is a ‘rational’ consumer? 72
4.2 Deriving the market demand curve 75
4.3 Elasticities of demand 75
4.4 Estimating the demand function 82
4.5 Price elasticities and the pricing decision 88
4.6 Conclusions 90
Summary 91
Questions for discussion 92
Exercises 93
Further reading 94
5 The firm in a competitive market 95
Introduction 95
5.1 Profit maximisation 96
5.2 Rules for maximising profit 101
5.3 Cost structure of the firm 107
5.4 The transaction costs approach 115
5.5 From cost structure to supply curve 119
5.6 Conclu sions 119
Summary 120
Questions for discussion 121
Exercises 122
Further reading 124
6 The economics of market power 125
Introduction 125
6.1 Firm size 126
6.2 The economics of market power 133
6.3 How to sustain monopoly power 141
6.4 Market power with few firms – the case of oligopoly 142
6.5 Conclusions 146
viii
Contents
Summary 147
Questions for discussion 148
Exercises 149
Further reading 150
Case study6.1: The diamond cartel 151
7 Competition policy, privatisation and regulation 155
Introduction 155
7.1 The case for competition 156
7.2 Competition policy 159
7.3 Privatisation 169
7.4 Regulation 171
7.5 Conclusions 175
Summary 176
Questions for discussion 177
Exercises 177
Further reading 179
8 Government intervention and the market system 180
Introduction 180
8.1 Income distribution and the equity(cid:1)–(cid:1)efficiency trade-off 182
8.2 Market failures 187
8.3 Government intervention 193
8.4 Government failure 198
8.5 Conclusions 202
Summary 203
Questions for discussion 204
Exercises 205
Further reading 205
9 Business and the environment 206
Introduc tion 206
9.1 Economic growth and the environment 208
9.2 Environmental policies 211
9.3 Policy instruments: design and effects 214
9.4 Impact on business 219
9.5 Conclusions 222
Summary 223
Questions for discussion 224
Exercises 224
Further reading 226
10 Hiring labour and the investment decision 227
Introduction 227
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