ECONOMICS FOR BUSINESS - Arul Edison Anthony Raj. I

559 Pages·2008·8.58 MB·English

IAN WORTHINGTON CHRIS BRITTON ANDY REES
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Economics for Business is a concise, business-focused book which R
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illustrates how the ideas and perspectives of economics can help us I
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make sense of the world in which we live. This book takes a business-
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first approach and then applies the economic theory to the business
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world. Business models are used to explain the relevance of the theory
to business life and the real problems faced by firms and managers. N I
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ECONOMICS FOR BUSINESS

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The new edition of this highly accessible book has been thoroughly
updated and continues to take a reader-centred approach, communicating E T
complex ideas in a straightforward and easy to understand manner. E O
S N Blending Theory and Practice
KEY FEATURES 2nd
• Focuses on the application of microeconomics to business, with macro analysis applied when relevant to Edition 2nd Edition
provide a fuller understanding of the business world.
• Excellent balance between discussion of economic theory and practical illustrations.
• Takes a global approach and includes chapters on international markets and environmental issues. E
• Case studies at the end of each chapter and mini cases within the chapter highlight key issues raised. C
• Extensive pedagogy includes: chapter objectives, questions and assignments at the end of each chapter,
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definitions in the margin.
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NEW TO THIS EDITION M
• More extensive coverage of macroeconomic issues.
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• Increased coverage of modern economic topics such as game theory, transaction cost analysis and C
principal-agent theory.
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• Additional mini cases have been added to all chapters.

• Many chapters benefit from new (or revised) case studies.
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• New online resource package to help teaching and learning, available at
www.pearsoned.co.uk/worthington, will include additional questions, solutions and hot links to O
economic websites.
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Economics for Business is suitable for undergraduate students studying business economics as
part of a business degree. The book will also be appropriate for DMS students and MBA modules in U
economics.
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Ian Worthington is Principal Lecturer in the Department of Strategy and Management, Leicester Business N
School, De Montfort University, where he specialises in the business environment and in environmental issues.
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Chris Britton is Principal Lecturer in the Department of Strategy and Management, Leicester Business School,
De Montfort University. Her teaching and research interests lie in the field of industrial economics and labour S
markets.
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Andy Rees is Head of the Department of Strategy and Management and Head of
Undergraduate Studies at Leicester Business School, De Montfort University, where he
specialises in business economics.
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BUSINESS
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● Multiple choice questions to help test your learning
● Links to relevant sites on the web
ECONOMICS FOR
BUSINESS
Blending Theory and Practice
Second Edition
Ian Worthington
Chris Britton
Andy Rees
Pearson Education Limited
Edinburgh Gate
Harlow
Essex CM20 2JE
England
and Associated Companies around the world
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First published 2001
Second edition published 2005
© Ian Worthington, Chris Britton, Andy Rees 2001, 2005
The rights of Ian Worthington, Chris Britton, and Andy Rees to be identified as authors of this work
have been asserted by them 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, mechanical,
photocopying, recording or otherwise, without either the prior written permission of the
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ISBN 0273685600
British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging-in-Publication Data
Worthington, Ian, 1946-
Economics for business : blending theory and practice/Ian Worthington, Chris Britton,
Andy Rees.--2nd ed.
p. cm.
Includes bibliographical references and index.
ISBN 0-273-68560-0 (alk. paper)
1. Managerial economics. I. Britton, Chris. II. Rees, Andy. III. Title.
HD30.22.W67 2004
338.5’024’658--dc22
2004057754
10 9 8 7 6 5 4 3 2 1
09 08 07 06 05
Typeset in Minion 10.5/12.5pt by 30.
Printed and bound by Ashford Colour Press Ltd, Gosport
The publisher’s policy is to use paper manufactured from sustainable forests.
For Margaret, Nick, Lindsey
and all the children and in
memory of David, John, Jim and Eva
1
CHAPTER 1 · THE ACCOUNTING WORLD vii
Contents
Guided tour of the book xii 2.3 Organisational structure 33
Preface to the first edition xiv 2.4 Theoretical approaches to the organisation 38
Preface to the second edition xv Mini case: Outsourcing the human resources
Acknowledgements xvi function 42
2.5 Networking and the virtual organisation 45
Section 1 2.6 Conclusion 46
THEFIRM IN ITSENVIRONMENT 1 Case study: Executive recruitment consultancy
as an example of the principal–agent
problem 47
1 Studying businesseconomics 3
Notes and references 48
Ian Worthington
Review and discussion questions 49
1.1 Introduction: why study economics? 3
Assignments 49
1.2 What is business economics? 4
Further reading 50
1.3 The firm in its environment: an overview 5
1.4 Macro and microeconomic influences on
Section 2
the firm 8
Mini case: VW issues profit warning 9 DEMAND AND SUPPLY 51
Mini case: A case of competition 10
1.5 Basic economic concepts 10
Mini case: Scarcity and the ivory tower 11 3 Consumer and marketdemand 53
1.6 Key themes 14
AndyRees
1.7 The structure of the book 15
3.1 Introduction 53
1.8 Choosing a route through the text 16
3.2 The demand curve 53
1.9 Conclusion 17
Mini case: Online piracy threatens the film
Case study: Problems at Rover 17
Notes and references 19 industry 54
Review and discussion questions 19 3.3 The market demand curve 59
Assignments 19 3.4 Consumer surplus 60
Further reading 19 3.5 Other determinants of demand 61
Appendix 1.1 Illustrating opportunity cost 20 Mini case: Careless talk costs customers! 64
Appendix 1.2 Scarcity, choice and resource 3.6 Elasticity 65
allocation 21 3.7 Criticisms of demand theory 81
Mini case: The price of texting 82
2 Organisation for production:
3.8 Conclusion 85
practicaland theoreticalperspectives 22 Case study: What your supermarket says about
Chris Britton you 86
2.1 Introduction 22 Notes and references 89
2.2 Legal structures 23 Review and discussion questions 90
Mini case: The Co-op 28 Assignments 90
Mini case: Organisational legal structures 32 Further reading 91
viii CONTENTS
4 Consumer behaviour: theoryand 6 Firms’ objectivesand behaviour 181
applications 92 Andy Rees
Andy Rees 6.1 Introduction 181
4.1 Introduction 92 6.2 The problems with profit maximisation 181
4.2 Consumer preferences 93 Mini case: Share options for company
4.3 Indifference curve analysis 96 directors and workers 187
Mini case: How the producer might capture Mini case: Non-executives: are you
consumer surplus 109 independent? 190
Mini case: ‘Gridlock fears as car costs fall’ 112 6.3 Alternative theories of the firm 192
Mini case: Advertising and indifference curve Mini case: Cosy world of the perk ethic? 198
analysis 115 6.4 Conclusion 203
4.4 Goods and their attributes 116 Case study: Investor power 203
4.5 Combining brands 120 Notes and references 207
4.6 Conclusion 128 Review and discussion questions 208
Case study: Overtime payments 128 Assignments 208
Notes and references 130 Further reading 208
Review and discussion questions 130
Assignments 131 Section 3
Further reading 131 MARKETSAND PRICES 209
5 Supply, costsand profits 132
7 Marketstructures 211
Andy Rees
Chris Britton
5.1 Introduction 132
7.1 Introduction 211
5.2 The supply curve 133
7.2 The Structure–Conduct–Performance
5.3 The elasticity of supply 135
approach 211
5.4 The production function 136
5.5 Short-run production 139 7.3 Porter’s five-forces model 214
5.6 Short-run cost 142 Mini case: Book retailing on the internet 215
5.7 Long-run cost 149 7.4 Market structure in theory 216
5.8 The explanation for scale economies 152 Mini case: OPEC 224
Mini case: Cost saving by ‘txt’ writing 155 7.5 Market structure in practice 225
5.9 Learning effects 156 Mini case: The long-run average cost curve 227
5.10 Scale diseconomies and ‘minimum 7.6 Conclusion 233
efficient size’ 157 Case study: Game theory and oligopoly 234
Mini case: Cost saving via relocation? 158 Notes and references 235
5.11 Profit maximisation 162 Review and discussion questions 235
Mini case: ‘Factories cash in on strong Assignments 236
sterling’ 164 Further reading 236
5.12 Conclusion 168
Appendix 7.1 The prisoners’ dilemma 236
Case study: Returning a loss-making firm to
profit 168 8 Conductand performance 238
Notes and references 174
Chris Britton
Review and discussion questions 175
Assignments 176 8.1 Introduction 238
Further reading 176 8.2 Conduct factors 239
Appendix 5.1 Market pricing by supply and Mini case: The market for trainers 245
demand 176 Mini case: Marketing to young children 248
Mini case: House prices 180 Mini case: Newspaper pricing 249
CONTENTS ix
8.3 Performance 253
Section 4
8.4 Conclusion 261
GOVERNMENT, FIRMSAND MARKETS 341
Case study: Advertising 261
Notes and references 263
Review and discussion questions 264 11 Governmentand business 343
Assignments 264 Ian Worthington
Further reading 264
11.1 Introduction 343
11.2 An overview 343
9 Pricing in theoryand practice 265 11.3 Levels of analysis 346
Andy Rees 11.4 Privatisation policy 346
9.1 Introduction 265 Mini case: Privatisation in China 352
9.2 Setting an equilibrium price 266 11.5 Competition policy 353
Mini case: Supermarket pricing jargon and Mini case: UK car prices 353
practices 276 Mini case: The law and competition 357
9.3 Pricing in different competitive markets 277 11.6 Spatial policies 360
9.4 Alternative pricing strategies 280 11.7 UK small firms policy 367
Mini case: Is KitKat in ‘decline’? 290 11.8 The ‘negotiated environment’ 373
11.9 Conclusion 375
Mini case: School holiday rip off? 297
Case study: Mega-mergers: a prescription for
9.5 Conclusion 301
success? 375
Case study: Selling by auction 302
Notes and references 376
Notes and references 305
Review and discussion questions 377
Review and discussion questions 305
Assignments 377
Assignments 305
Further reading 377
Further reading 306
12 The macroeconomicenvironment
10 Internationalmarkets 307 ofthe firm 379
Chris Britton
Ian Worthington
10.1 Introduction 307
12.1 Introduction 379
10.2 International trade – why it takes place 307
12.2 The market-based economy 380
10.3 Restrictions to international trade 309
12.3 Modelling the macroeconomy 382
Mini case: The EU constitution 312
Mini case: Global economic crisis 386
10.4 The balance of payments 313
12.4 Government and the macroeconomy:
10.5 The history of the balance of payments
objectives 387
in the UK 317
12.5 Government and the macroeconomy:
Mini case: The current account of the
policies 394
balance of payments 319
Mini case: Balancing the budget? 397
10.6 Exchange rates 322 12.6 Government and the macroeconomy:
Mini case: Membership of the euro 329 a comment 399
10.7 Exchange rates and business 330 12.7 The role of financial institutions 400
10.8 Multinationals and foreign direct 12.8 International economic institutions and
investment 331 organisations 402
Mini case: FDI indices 334 Mini case: OECD predicts G7 recovery 404
10.9 Conclusion 336 12.9 Conclusion 405
Case study: European Union enlargement 337 Case study: Perceptions of fiscal prudence 406
Notes and references 338 Notes and references 407
Review and discussion questions 338 Review and discussion questions 407
Assignments 339 Assignments 408
Further reading 339 Further reading 408