Essential Economics for Business

425 Pages·2019·13.827 MB·English

by  John Sloman, Elizabeth Jones

ESSENTIAL

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ECONOMICS
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ECONOMICS
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FOR BUSINESS
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SIXTH EDITION

E FOR BUSINESS
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If you are a student on a business or management degree or diploma and taking a module
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which includes economics, then this text is written for you. Concise and accessible, this sixth
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edition focuses on the core economics you will need as a business student, or as a student
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studying a related discipline, such as management, in addition to key business-related topics,
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such as business organisation and strategy.
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Numerous case studies and examples throughout the text illustrate how economics can be C
used to understand specifi c business problems or aspects of the business environment, from S SIXTH EDITION
economic growth and the state of the economy to levels of business investment, interest rates,
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employment issues, the prices that fi rms charge and the profi ts they make, corporate social O
responsibility, the rise of online shopping and Brexit. R

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A wealth of additional material to support your learning can be found on the Companion U
Website at www.pearsoned.co.uk/sloman and on the Sloman Economics News Site – a S
blog with regularly-updated news and current affairs, all linked to chapters in the book. I
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John Sloman was Director of the Economics Network from its foundation in 1999 until 2012, S
and is now Visiting Fellow at the University of Bristol where the Network is based. John is also S
Visiting Professor at the University of the West of England, Bristol.
Elizabeth Jones is a Professor of Economics and Director of Undergraduate Studies in the S
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Department of Economics at the University of Warwick. Elizabeth is also a lecturer on HM O
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Treasury’s Graduate Development Programme and teaches Economics for non-economists
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courses across various government departments. N

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Front cover image © Peter Barritt / robertharding / Alamy Stock Photo www.pearsoned.co.uk E JOHN SLOMAN

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ELIZABETH JONES
CVR_SLOMA__06_04533.indd 1 11/4/19 10:13 AM
ESSENTIAL ECONOMICS
FOR BUSINESS
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ESSENTIAL ECONOMICS
FOR BUSINESS
Sixth edition
John Sloman
Economics Network
Visiting Professor, University of the West of England
Elizabeth Jones
Professor of Economics and Director of Undergraduate Studies,
University of Warwick
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First published 2005 (print)
Second published 2008 (print)
Third published 2011 (print)
Fourth edition published 2014 (print and electronic)
Fifth edition published 2017 (print and electronic)
Sixth edition published 2020 (print and electronic)
© Pearson Education Limited 2005, 2011 (print)
© Pearson Education Limited 2014, 2017, 2020 (print and electronic)
The rights of John Sloman and Elizabeth Jones to be identified as authors of this work have been asserted by them
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ISBN: 978-1-292-30453-3 (print)
978-1-292-30456-4 (PDF)
978-1-292-30458-8 (ePub)
British Library Cataloguing-in-Publication Data
A catalogue record for the print edition is available from the British Library
Library of Congress Cataloging-in-Publication Data
Names: Sloman, John, 1947- author. | Jones, Elizabeth, 1984- author.
Title: Essential economics for business / John Sloman, Economics Network
Visiting Professor, University of the West of England, Elizabeth Jones,
Principal Teaching Fellow and Dean of Students, University of Warwick.
Description: Sixth edition. | Harlow, England : Pearson, 2020. | Includes
bibliographical references and index. | Summary: “Welcome to the sixth
edition of Essentials Economics for Business. If you are a student on a
business or management degree or diploma course and taking a module
which includes economics, then this book is written for you. Such
modules may go under the title of Business Environment or Business
Context, or they may simply be called Introduction to Economics or
Introduction to Business Economics. Alternatively, you may be studying
on an MBA and need a grounding in basic economic concepts and how they
apply to the business environment”-- Provided by publisher.
Identifiers: LCCN 2019030563 (print) | LCCN 2019030564 (ebook) | ISBN
9781292304533 (paperback) | ISBN 9781292304564 (pdf) | ISBN
9781292304588 (epub)
Subjects: LCSH: Managerial economics. | Economics. | Business. | Industrial
management.
Classification: LCC HD30.22 .S58 2020 (print) | LCC HD30.22 (ebook) | DDC
330--dc23
LC record available at https://lccn.loc.gov/2019030563
LC ebook record available at https://lccn.loc.gov/2019030564
10 9 8 7 6 5 4 3 2 1
19 18 17 16 15
Cover image: Peter Barritt / robertharding / Alamy Stock Photo
All Part and Chapter opener images © John Sloman
Print edition typeset in Sabon MT Pro 10pt by SPi Global
Print edition printed in Slovakia by Neografia
NOTE THAT ANY PAGE CROSS REFERENCES REFER TO THE PRINT EDITION
Brief contents
Preface ix
Publisher’s acknowledgements xiv
Part A INTRODUCTION
1 Business and the economic environment 2
Part B MARKETS, DEMAND AND SUPPLY
2 The working of competitive markets 26
3 Demand and the consumer 55
4 Supply decisions in a perfectly competitive market 81
Part C THE MICROECONOMIC ENVIRONMENT OF BUSINESS
5 Pricing and output decisions in imperfectly competitive markets 110
6 Business growth and strategy 145
7 Multinational corporations and business strategy in a global economy 175
8 Labour and employment 196
9 Government, the firm and the market 221
Part D THE MACROECONOMIC ENVIRONMENT OF BUSINESS
10 The economy and business activity 258
11 National macroeconomic policy 293
12 The global trading environment 325
13 The global financial environment 354
Websites appendix W:1
Key ideas K:1
Glossary G:1
Index I:1

Contents
Preface ix 4 Supply decisions in a perfectly competitive
Publisher’s acknowledgements xiv market 81
4.1 Production and costs in the short run 82
4.2 Production and costs: long run 89
PART A INTRODUCTION 4.3 Revenue 98
4.4 Profit maximisation 100
1 Business and the economic environment 2 Box 4.1 Diminishing returns and business 83
1.1 The business organisation 6 Box 4.2 Understanding your fixed costs 87
1.2 The external business environment 11 Box 4.3 Lights, camera, action 94
1.3 The economist’s approach to business 20 Box 4.4 Minimum efficient scale 96
Box 1.1 A perfect partnership 3 Box 4.5 Cost, revenue and profits 99
Box 1.2 The airline industry 13 Box 4.6 E-commerce 104
Box 1.3 The changing nature of business 19 Questions 106
Questions 24 Part end – additional case studies and relevant websites 107
Part end – additional case studies and relevant websites 24
THE MICROECONOMIC ENVIRONMENT
PART C
PART B MARKETS, DEMAND AND SUPPLY OF BUSINESS
2 The working of competitive markets 26 5 Pricing and output decisions in imperfectly
competitive markets 110
2.1 Business in a perfectly competitive market 26
2.2 Demand 28 5.1 Alternative market structures 110
2.3 Supply 32 5.2 Monopoly 116
2.4 Price and output determination 35 5.3 Oligopoly 121
2.5 Elasticity of demand and supply 42 5.4 Game theory 127
Box 2.1 Stock market prices 38 5.5 Alternative aims of the firm 134
Box 2.2 UK house prices 40 5.6 Setting price 139
Box 2.3 Shall we put up our price? 47 Box 5.1 A fast food race to the bottom 114
Box 2.4 Speculation 49 Box 5.2 Premier league football: the sky is the limit 120
Box 2.5 Market intervention 51 Box 5.3 Market power in oligopolistic industries 125
Questions 53 Box 5.4 The prisoners’ dilemma 130
Box 5.5 The Hunger Games 132
3 Demand and the consumer 55 Box 5.6 Behavioural economics and the firm 137
Questions 143
3.1 Demand and the firm 55
3.2 Understanding consumer behaviour 56
6 Business growth and strategy 145
3.3 Behavioural economics 63
3.4 Estimating and predicting demand 66 6.1 Strategic analysis 145
3.5 Stimulating demand 71 6.2 Strategic choice 149
Box 3.1 Rogue traders 59 6.3 Growth strategy 155
Box 3.2 Problems for unwary insurance companies 62 6.4 Financing growth and investment 165
Box 3.3 Using policy to change behaviour 66 6.5 Starting small 168
Box 3.4 Global advertising trends: a new world 72 Box 6.1 Business strategy the Samsung way 150
Box 3.5 Advertising and the long run 78 Box 6.2 The ratios to measure success 153
Questions 80 Box 6.3 Strategies in uncertain times 161
viii CONTENTS
Box 6.4 Hotel Chocolat 172 10.6 Unemployment 280
Questions 173 10.7 Inflation 284
Box 10.1 Doing the sums 268
7 Multinational corporations and business Box 10.2 The economics of playing host 268
strategy in a global economy 175 Box 10.3 Sentiment and spending 274
7.1 The globalisation debate 176 Box 10.4 Inflation and unemployment: how costly? 286
7.2 Multinational corporations 177 Box 10.5 Airlines and the macroeconomy 289
7.3 Business strategy in a global economy 183 Questions 291
7.4 Problems facing multinationals 190
11 National macroeconomic policy 293
7.5 Multinationals and the host state 191
Box 7.1 Cross-border merger activity 181 11.1 Fiscal policy 295
Box 7.2 Attracting foreign investors 187 11.2 Monetary policy 304
Box 7.3 Grocers go global 189 11.3 Supply-side policy 314
Box 7.4 Investing in Africa 193 Box 11.1 The fiscal framework in the eurozone 301
Questions 194 Box 11.2 The central banks of the USA and the eurozone 309
Box 11.3 The credit crunch and its aftermath 311
8 Labour and employment 196 Box 11.4 Japan’s volatile past and present 315
8.1 Market-determined wage rates and employment 196 Box 11.5 Productivity 321
8.2 Power in the labour market 202 Questions 323
8.3 Minimum wages 207
12 The global trading environment 325
8.4 The flexible firm and the market for labour 210
8.5 The labour market and incentives 215 12.1 International trade 326
Box 8.1 New ways of working 198 12.2 Trade restrictions 333
Box 8.2 What do post, airlines, bins, buses and 12.3 The world trading system and the WTO 341
universities have in common? 205 12.4 The European Union and the single market 345
Box 8.3 Does gender inequality still exist? 212 12.5 Brexit 349
Box 8.4 Education, earnings, productivity and talent 218 Box 12.1 The changing face of comparative advantage 330
Questions 220 Box 12.2 Strategic trade theory 335
Box 12.3 Beyond bananas 338
9 Government, the firm and the market 221 Box 12.4 Preferential trading 343
9.1 Market failures 222 Box 12.5 In or out? 347
9.2 Firms and corporate responsibility 228 Questions 353
9.3 Government intervention in the market 233
13 The global financial environment 354
9.4 Environmental policy 235
9.5 Competition policy and business behaviour 244 13.1 The balance of payments 355
9.6 The regulation of business 250 13.2 The exchange rate 358
Box 9.1 The problem of free-riders 226 13.3 The growth of global financial flows 368
Box 9.2 The Body Shop 232 13.4 Economic and monetary union in the EU 370
Box 9.3 A Stern rebuke 237 13.5 International economic policy: managing the
Box 9.4 The problem of urban traffic congestion 241 global economy 375
Box 9.5 Google ‘Google’ 247 Box 13.1 The importance of international financial
Questions 253 movements 361
Part end – additional case studies and relevant websites 254 Box 13.2 Exchange rate uncertainty and the plight of
business 364
Box 13.3 The euro/dollar seesaw 365
PART D THE MACROECONOMIC ENVIRONMENT Box 13.4 Global problems. global answers? 377
OF BUSINESS Questions 379
Part end – additional case studies and relevant websites 380
10 The economy and business activity 258
Websites appendix W:1
10.1 The key macroeconomic objectives 258 Key ideas K:1
10.2 Business activity and the circular flow of income 260 Glossary G:1
10.3 The determination of business activity 264 Index I:1
10.4 The business cycle 271
10.5 Money, interest rates and business activity 275
Preface
TO THE STUDENT
Welcome to the sixth edition of Essentials Economics ably take up employment in business. A grounding in
for Business. If you are a student on a business or economic principles and how they relate to the world
management degree or diploma course and taking a of business should prove invaluable in the business
module which includes economics, then this book is decisions you may well have to make.
written for you. Such modules may go under the title The aim throughout the book is to make this
of Business Environment or Business Context, or they intriguing subject clear for you to understand and as
may simply be called Introduction to Economics or relevant as possible to you as a student of business.
Introduction to Business Economics. Alternatively, The written style is direct and straightforward,
you may be studying on an MBA and need a ground- with short paragraphs to aid rapid comprehension.
ing in basic economic concepts and how they apply to Definitions of all key terms are given in the margin,
the business environment. with defined terms appearing in bold. We have high-
The book covers the core economics that you will lighted 29 Key Ideas, which are fundamental to
need as a business student, but it also covers various ‘thinking like an economist’. We refer back to these
business-related topics not typically covered in an every time they recur throughout the book. This
introductory economics textbook. These topics helps you to see how the subject ties together, and
include elements of business organisation and busi- also helps you to develop a toolkit of concepts that
ness strategy. can be used in a whole host of different contexts.
As well as making considerable use of business Summaries (‘Recaps’) are given at the end of each
examples throughout the text, we have included section of each chapter. These should help you in
many case studies in boxes (60 in all). These illustrate reviewing the material you have just covered and in
how economics can be used to understand particular revising for exams. Each chapter finishes with a series
business problems or aspects of the business environ- of questions, as does each of the boxes. These can be
ment. Many of these case studies cover issues that used to check your understanding of the chapter and
you are likely to read about in the newspapers. Some help you to see how its material can be applied to
cover general business issues; others look at specific various business problems. Each of the boxes also
companies. There are also an additional 112 case includes a student activity (new for this edition),
studies on the book’s companion website. These, which can be done individually or in groups.
along with references to various useful websites, are There are also questions interspersed throughout
listed at the end of each of the four parts of the book. the text in ‘Pause for thought’ panels. These encour-
We hope that, in using this book, you will share our age you to reflect on what you are learning and to see
fascination for economics. It is a subject that is highly how the various ideas and theories relate to different
relevant to the world in which we live. You only have issues. Answers to these questions are given on the
to look at global events and the news to see its impor- book’s companion website.
tance: from economic growth, to levels of business We hope you enjoy the book and come to appreci-
investment, to interest rates, to employment issues, to ate the crucial role that economics plays in all our
the prices firms charge, to the rise of online shopping, lives and, in particular, in the practice of business.
to Brexit, to the rise of populist governments and Good luck and enjoy. Perhaps this will be just the
policies. Many of our needs are served by business – beginning of a life-long interest in economic issues
whether as employers or as producers of the goods and how they apply to the world of business – and in
and services we buy. After graduating, you will prob- your own personal life too!