Kt 00099 JOHN SLOMAN AND KEVIN HINDE ECONOMICS FOR BUSINESS FOURTH EDITION JOHN SLOMAN VÀ KEVIN HINDE KINH TẾ CHO DOANH NGHIỆP PHIÊN BẢN THỨ TƯ

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JOHN SLOMAN AND KEVIN HINDE

ECONOMICS FOR BUSINESS

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Economics for Business

Grade Tracker at www.pearsoned.co.uk/sloman to find valuable student

learning material including:

+ Learning objectives for each chapter

+ Multiple choice questions with Grade Tracker function to test your

learning and monitor your progress

+ Up-to-date case studies with questions for self study

* Topical economic issues relating to material directly in the book

+ Economics news articles with features on topical stories, with analysis

and finks to the book

« Hotlinks to over 200 relevant sites on the web

+ Answers to all in-chapter ‘Pause for Thought’ questions

» Án online glossary to explain key terms

Companion Website with Grade Tracker fooks and performs just like a

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JOHN SLOMAN AND KEVIN HINDE

ECONOMICS FOR BUSINESS

FOURTH EDITION

= Cape Towne ‘Madrid + Mexico City’s Amsterdam « Munich *

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Pearson Education Limited

Edinburgh Gate

Harlow

Essex CM20 2JE

England

and Associated Companies throughout the world

Visit us on the World Wide Web at:

www, pearsoned.co.uk

First published by Prentice Hall 1998

Second edition published 2001

Third edition published 2004

Fourth edition published 2007

The rights of John Sloman and Kevin Hinde to be

identified as authors of this work have been asserted

by them in accordance with the Copyright, Designs and

Patents Act 1988

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 publisher or a

licence permitting restricted copying in the United Kingdom issued

by the Copyright Licensing Agency Ltd, Saffron House,

6-10 Kirby Street, London EC1N 8TS,

ISBN: 978-0-273-70908-4

British Library Cataioguing-in-Publication Data

A catalogue record for this book is available from the British Library

Library of Congress Cataloging-in-Publication Data

A catalogue record for this book is available from the Library of

Congress

1098765432

11 1Ô 09 08

Typeset by 35 in 10.25/12pt Sabon

Printed and bound by Graficas Estella, Navarro, Spain

The publisher's policy is to use Paper manufactured from sustainable

forests

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Brief contents

Preface Publisher’s acknowledgements Guided tour

Chapter 1 The business environment and business economics Chapter 2 Economies and the world of business

Chapter 3 Business organisations

Chapter Chapter ¿

Chapter

g of competitive markets

2 Market environment

6 Demand and the consumer

? Demand and the fem

& Product, marketing 2

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vi BRIEF CONTENTS

Chapter 15 An intreduction fo business strategy

Chapter 15 Growth strategy

304

Chapter 17 Pricing strategy

Chapter 20 Reasons for government intervention in the market 419

Chapter 25 Trading blocs

S51

Chapter 27 The balance of payments and exchange rates 606

Chapter 29 Business activity, employment and inflation 650

Chapter 30 Demand-side policy

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Chapter 2

21 2.2

23

Chapter 3

Detailed contents

Preface Publisher’s acknowledgements Guided tour

The business environment and business economics

The business environment The structure of industry The determinants of business performance Box 1.1 The biotechnology industry

Review questions to appendix

Business organisations The nature of firms

The firm as a legal entity

The internal organisation of the firm Box 3.1 Managers and owners Box 3.2 The changing nature of business

Summary Review questions

Part end — additional case studies and relevant websites

xvii

xxiii

xxvii

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The working of competitive markets

Business in a competitive market Demand

Box 5.1 The measurement of elasticity

Box 5.2 Adjusting to oil price shocks Box 5.3 The role of the speculator

Part end ~ additional case studies and relevant websites

Demand and the consurner

Marginal utility theory Demand under conditions of risk and uncertainty

The characteristics approach to analysing consumer demand Box 6.1 The marginal utility revolution: Jevons, Menger, Walras

Box 6.2 Rogue traders Summary

Review questions

Demand and the fire

Estimating demand functions Forecasting demand

Box 7.1 The demand for lamb Summary

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9.1 The meaning of costs 173

Box 9.1 The fallacy of using historic costs 174 Box 9.2 Short-run cost curves in practice 183 Box 9.3 UK competitiveness: moving to the next stage 190

11.2 Perfect competition 222

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Box 12.3 Reining in Big Business 258

Box 13.1 Business strategy the Samsung way 272

Review questions 290

Chapter 15 Growth strategy 304

15.2 Constraints on growth 306

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External growth through strategic alliance 317

Explaining external firm growth: a transactions costs approach 321

Review questions 325

The survival, growth and failure of small businesses 329

Box 16.1 Capturing the entrepreneurial spirit 330

Box 16.2 The Dyson Dual Cyclone vacuum cleaner 335

Pricing and the product life cycle 357

Box 17.2 How do European companies set prices? 352

Labour markets, wages and industrial relations ab

Market-determined wage rates and employment 367

Firms with power in the labour market 374

The flexible firm and the market for labour 386

Box 18.3 The Internet and labour mobility 388

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tì and the samplaymeni of capBai Bí i

The pricing of capital and capital services The demand for and supply of capital services Investment appraisal

Financing investment The stock market Box 19.1 Investing in roads Box 19.2 Financing innovation Summary

Review questions

Part end — additional case studies and relevant websites

Reasons for government intervention in the market

Markets and the role of government

Types of market failure Government intervention in the market The case for less government intervention Firms and social responsibility

Box 20.1 Can the market provide adequate protection for

the environment?

Box 20.2 Deadweight loss from taxes on goods and services Box 20.3 The Body Shop

Government and the firm

Competition policy Policies towards research and development (R&D) Policies towards training

Box 21.1 The umpires strike back

Box 21.2 The R&D Scoreboard Box 21.3 The UK needs to ‘raise its game’

Summary

Review questions

Government and the market

Environmental policy Transport policy Privatisation and regulation

Box 22.1 Selling the environment

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DETAILED CONTENTS — xiit

Box 22.2 Road pricing in Singapore Box 22.3 The right track to reform?

Summary

Review questions

Part end - additional case studies and relevant websites

Globalisation and multinational business

Globalisation: setting the scene

What is a multinational corporation?

Trends in multinational investment

Why do businesses go multinational?

The advantages of MNC investment for the host state The disadvantages of MNC investment for the host state

Multinational corporations and developing economies Box 23.1 The transnationality index

Box 23.2 Location Location Location

Box 23.3 Grocers go global

International trade

Trading patterns The advantages of trade

Arguments for restricting trade The world trading system and the WTO Box 24.1 Strategic trade theory Box 24.2 Steel barriers

Box 24.3 The Doha development agenda

Trading blocs

Preferential trading Preferential trading in practice

The European Union Box 25.1 Beyond bananas

Box 25.2 The Internal Market Scoreboard

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xiv DETAILED CONTENTS

Inflation The business cycle and macroeconomic objectives

The circular flow of income

Box 26.1 Output gaps

Box 26.2 Is inflation dead?

Box 26.3 Inflation or deflation?

Appendix: Measuring national income and output

Summary to appendix Review questions to appendix

The balance of payments and exchange rates The balance of payments account

The exchange rate Exchange rates and the balance of payments

Fixed versus floating exchange rates Box 27.1 Dealing in foreign exchange Box 27.2 The importance of international financial movements Box 27.3 The euro/dollar see-saw

Summary

Review questions

Money and interest rates

The meaning and functions of money The financial system

The supply of money The demand for money

Business activity, employment and inflation The determination of business activity

The relationship between money and GDP

Unemployment and inflation Inflation targeting and unemployment Business cycles

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DETAILED CONTENTS xv

Box 29.1 Business expectations and their effect on investment Box 29.2 The accelerator effect

Part end ~ additional case studies and relevant websites

Box 30.3 Monetary policy in the eurozone Box 30.4 Inflation targeting

Box 31.1 Productivity and economic growth

Box 31.2 A new approach to industrial policy

Summary

Review questions

international economic policy

International-business cycles

International harmonisation of economic policies

European economic and monetary union Alternative policies for achieving currency stability

Box 32.1 Optimal currency areas Box 32.2 The Tobin tax

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Visit www,pearsoned.co.uk/sloman to find valuable online resources

Companion Website with Grade Tracker for students

+ Learning objectives for each chapter

* Multiple choice questions with Grade Tracker function

and monitor your progress

Up-to-date case studies with questions for self study

Topical economic issues relating to material directly in the book

Economics news articles with features on topical stories,

links to the book

Hotlinks to over 200 relevant sites on the web

Answers to ail in-chapter ‘Pause for Thought’ questions

An online glossary to explain key terms

to test your learning

with analysis and

Aiso: The regularly maintained Companion Website with Grade Tracker

Provides the following features:

* Search tool to help locate specific items of content

* Online help and support to assist with website usage and troubleshooting

For lecturers

instructor you can create a class and allow students to enrol to track

individual and class Progress

TestGen testbank of customisable questions for formative or summative

assessment

electronic audience response system

Downloadable PowerPoint slides of all figures and most tables from the book

A range of teaching and learning case studies

in workshops, and Web Case Studies

These lecturer resources are also available on CD-ROM from your Pearson

Education saies representative,

| representative or visit www.pearsoned.co.uk/stoman

Supporting resources ¬

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If you are studying economics on a business degree or diploma, then this book is

written for you Although we cover all the major principles of economics, the focus

throughout is on the world of business For this reason we also cover several topics

that do not appear in traditional economics textbooks

As well as making considerable use of business examples throughout the text,

we have included many case studies (in boxes) These illustrate how economics

can be used to understand particular business problems or aspects of the business

environment Many of these case studies cover issues that you are likely to read

about in the newspapers Some cover general business issues; others look at specific

companies There are also many additional case studies appearing on the book’s

website, These, along with references to various useful websites, are listed at the

end of each Part of the book

The style of writing is direct and straightforward, with short paragraphs to aid

rapid comprehension Definitions of all key terms are given in the margin, with

defined terms appearing in bold Also we have highlighted 43 ‘Key ideas’, which

are fundamental to ‘thinking like an economist’ We refer back to these every

time they recur in the book This helps you to see how the subject ties together,

and also helps you to develop a toolkit of concepts that can be used in a host of

different contexts

Summaries are given at the end of each chapter, with points numbered accord-

ing to the section in which they appeared These summaries should help you in

reviewing the material you have covered and in revising for exams Each chapter

finishes with a series of questions These can be used to check your understand-

ing of the chapter and help you to see how its material can be applied to various

business problems

There are also questions interspersed throughout the text in ‘Pause for thought’

panels These encourage you to reflect on what you are learning and to see how

the various ideas and theories relate to different issues

The book’s website offers additional learning support As well as providing the

case studies mentioned above, there are multiple-choice questions and workshops

to improve your understanding of concepts and techniques used in economics A

monthly news file, with links to current articles, is also available on the website to

bring you up-to-date with current events There are also hotlinks to over 200 key

websites that are useful for studying economics

We hope that, in using this book, you will share some of our fascination for

economics It is a subject that is highly relevant to the world in which we live

And it is a world where many of our needs are served by business — whether as

employers or as producers of the goods and services we buy After graduating,

you will probably take up employment in business A thorough grounding in

economic principles should prove invaluable in the business decisions you may

well have to make

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Being essentially a book on economics, we cover all the major topics found in standard economics texts ~ indeed, much of the material in the principles sections

is drawn directly from Economics (6th edition) But in addition there are several

specialist business chapters and sections to build upon and enliven the subject for business studies students These have been fully updated and revised for this new edition The following are some examples of these additional topics:

& The business environment

& Business organisations

@ Characteristics theory

& Marketing the product Business strategy

@ Alternative aims of firms

& Growth strategy

w Strategic alliances

@ The small-firm sector

@ Pricing in practice Government and the firm, including policies towards research and develop-

ment (R&D) and policies towards training

@ Government and the market, including environmental policy and transport policy

@ Financial markets

@ The multinational corporation Globalisation and business Trading blocs

& Monetary union

The text is split into 32 chapters Each chapter is kept relatively short to enable the material to be covered in a single lecture or class Each chapter finishes with review questions, which can be used for seminars or discussion sessions

The chapters are grouped into 11 Parts:

Part A Business and economics (Chapters 1-3) establishes the place of business within the economy and the relevance of economics to business decision making

m@ Part B Business and markets (Chapters 4 and 5) looks at the operation of

markets It covers supply and demand analysis and examines the importance

of the concept of elasticity for business decisions

ta Part C Background to demand (Chapters 6~8) considers the consumer — how

consumer behaviour can be predicted and how, via advertising and marketing, consumer demand can be influenced

Part D Background to supply (Chapters 9 and 10) focuses on business costs, revenue and profits,

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Part E Supply: short-run profit maximisation (Chapters 11 and 12) presents

the traditional analysis of market structures and the implications that such

structures have for business conduct and performance

Part F Supply: alternative strategies (Chapters 13-17) starts by looking at

business strategy It then considers various alternative theories of the firm

It.also examines how business size can influence business actions, and how

pricing strategies differ from one firm to another and how these strategies are

influenced by the market conditions in which firms operate

Part G The firm in the factor market (Chapters 18 and 19) focuses on the

market for labour and the market for capital Irexamines what determines the

factor proportions that firms use and how factor prices are determined

Part H The relationship between government and business (Chapters 20-22)

establishes the theoretical rationale behind government intervention in the

economy, and then assesses the relationship between the government and the

individual firm and the government and the market

Part I Business in the international environment (Chapters 23-25) starts by

examining the process of globalisation and the growth of the multinational

business It then turns to international trade and the benefits that accrue from

it Ic also examines the issue of protection and international moves to advance

free trade Finally it examines the expansion of regional trading agreements,

Part J The macroeconomic environment (Chapters 26-29) considers the

macroeconomic framework in which firms operate We focus on the principal

macroeconomic variables, investigate the role of money in the economy, and

briefly outline the theoretical models underpinning the relationships between

these variables

Part K Macroeconomic policy (Chapters 30-32) examines the mechanics of

government intervention at a macro level as well as its impact on business and

its potential benefits and drawbacks Demand-side and supply-side policy and

economic policy co-ordination between countries are all considered

The book contains the following special features:

A direct and straightforward written style, with short paragraphs to aid rapid

comprehension The aim all the time is to provide maximum clarity

Attractive full-colour design The careful and consistent use of colour and

shading makes the text more attractive to students and easier to use by giving

clear signals as to the book’s structure

Key ideas highlighted and explained where they first appear There are 43 of

these ideas, which are fundamental to the study of economics Students can

see them recurring throughout the book, and an icon appears in the margin to

refer back to the page where the idea first appears Showing how ideas can be

used in a variety of contexts helps students to ‘think like an economist’ and to

relate the different parts of the subject together All 43 Key ideas are defined

in a special section at the end of the book

‘Pause for thought’ questions integrated throughout the text These encourage

students to reflect on what they have just read and make the learning process

a more active one, Answers to these questions appear in the student section of

the book’s website

PREFACE xix

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xx PREFACE

® Double-page opening spreads for each of the 11 Parts of the book ‘These con- tain an introduction to the material covered and an article from the Financial Times on one of the topics

i All technical terms are highlighted and clearly defined in the margin on the page on which they appear This feature proved very popular in the first three editions and is especially useful for students when revising

@ A comprehensive glossary (new to this edition) of all technical terms

& Additional applied material to that found in the text can be found in the boxes

within each chapter All boxes include questions which relate the material back

to the chapter in which the box is located The extensive use of applied material makes learning much more interesting for students and helps to bring the sub-

ject alive This is particularly important for business students who need to relate

economic theory to their other subjects and to the world of business generally

® Additional case studies appearing on the book’s website are referred to at the end of each Part

@ Detailed summaries appear at the end of each chapter with the points numbered by the chapter section in which they are made These allow students not only to check their comprehension of the chapter’s contents, but also to get a clear overview of the material they have been studying

® Each chapter concludes with a series of review questions to test students’ understanding of the chapter’s salient points These questions can be used for seminars or as set work to be completed in the students’ own time

® References at the end of each Part to a list of relevant websites, details of which can be found in the Web appendix at the end of the book You can easily access

any of these sites from the book’s own website (at www.pearsoned,com/sloman}

When you enter the site, click on ‘Hotlinks’ You will find all the sites from the Web appendix listed Click on the one you want and the ‘hotlink? will take

you straight to it

= A comprehensive index, including reference to all defined terms This enables students to look up a definition as required and to see it used in context,

@ Study material to help you improve your results Amongst other resources,

this includes a complete online workbook

& Answers to all ‘Pause for thought’ and box questions, to allow you to check

your understanding as you progress

Economics news articles, updated monthly: some 15 to 20 news items per month,

with links to one or more newspaper articles per item There are questions on each item and references to the relevant chapter(s) of the book,

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Topical economic issues, with analysis and links to key concepts and pages in

the book

Hotlinks to over 200 useful websites listed in the book’s Web appendix and

referenced at the end of each Part of the text

Several additional case studies for each Part of the book and referenced at the

end of each Part

Self-test questions, organised chapter by chapter

For tutors

A range of teaching and learning case studies, with the focus on improving

student learning outcomes

All figures and tables from the book in PowerPoint®, in two versions, each

animated and in full colour

Full colour OHTs of all figures and tables (on a clear background), Also

suitable for black-and-white printing Can be used for handouts

Customisable full-colour lecture plans in PowerPoint®, with integrated animated

diagrams and tables Can also be used for handouts, There is also a version

with integrated multiple-choice questions that can be used in a lecture, with

students answering either using an electronic personal response system or by

a simple show of hands

Key models as full-colour animated PowerPoint® slide shows

Workshops and answers (password protected) in Word® These can be used

in class or set as homework

Answers to end-of-chapter questions in a secure password protected area of

the site

CD-ROM (new edition)

The tutor’s CD has been thoroughly revised to take account of the changes in the

fourth edition It is available free of charge from Pearson Education to tutors

using the book as a course text It contains the following:

PowerPoint® slide shows in full colour for use with a data projector in lectures

and classes These can also be made available to students by loading them

on to a local network All PowerPoint® files are small enough to copy to a

3'h-inch disk (for portability) and are available in light on dark backgrounds,

and dark on light background versions The CD contains several types of

these slide shows:

~ All figures from the book and most of the tables Each figure is built up in

a logical sequence, thereby allowing tutors to show them in lectures in an

animated form

- A range of models These show how the key models used in the book are

developed There are 30 of these models and each one builds up in around

20 to 50 screens

~ Lecture plans These are a series of bullet-point lecture plans There is one

for each chapter of the book Each one can be easily edited, with points

added, deleted or moved, so as to suit particular lectures A consistent use

of colour is made to show how the points tie together The lecture plans are

also available in Word®

PREFACE xxi

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xxii PREFACE

~ Lecture plans with integrated diagrams These lecture plans include animated diagrams and charts at the appropriate points Another version contains multiple-choice questions for use in lectures with an electronic personal

a Multiple-choice, short answer and true-false questions This very large test bank is completely redesigned and contains many new questions It is exible

and easy to use

m Case studies These, also available on the book’s website, can be reproduced

and used for classroom exercises or for student assignments

@ Workshops in Word® for use in class

Answers Full answers are given in Word® files to all end-of-chapter, ‘Pause for thought’, box, case study and workshop questions

WinEcon

The widely acclaimed, award-winning WinEcon software, produced and authored

by a consortium of economists drawn from several UK universities and designed

to support introductory economics, is now web-enabled and adapted by John Sloman in a special version designed for Economics for Business (fourth edition), for both institutions and students There is a separate chapter in this Sloman version of WinEcon to correspond to the relevant chapter in the book The software includes

graphical interactive tutorials, relevant theory, self-assessment questions, economic

databases and an economic glossary providing a comprehensive attractive and highly-interactive resource For more information on downloading this software, please go to www.winecon.com/sloman

As with previous editions, we’ve had great support from the team at Pearson, including Julian Partridge, Justinia Seaman and Joe Vella We’d like to thank all of them for their hard work and encouragement Thanks too to the many users of the book who have given us feedback We always value their comments Please continue to send us your views

Mark Sutcliffe, a co-author with John on previous editions, has moved on

to a new venture However, many of his wise words and ideas are still embedded

in this edition and, for that, we offer a huge thanks

Our two families have also been remarkably tolerant and supportive throughout Thanks especially to Alison and Jane who seem to have perfected a subtle

blend of encouragement, humour and patience

John and Kevin

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Figure 8.2 Based on H.A Lipson and J.R Darling, Introduction to Marketing:

an administrative approach (Jolin Wiley 8& Sons Inc., 1971) Reproduced with

permission; Box 9.3, unnumbered figure: From Michael E Porter and Christian

H M Ketels, UK Competitiveness: moving to the next stage (DTI and ESRC,

with the permission of the Controller of Her Majesty’s Stationery Office (HMSO}

under the terms of the click-use licence; Figure 13.2: From Michael E Porter,

Competitive Strategy: Techniques for Analyzing Industries and Competitiors

(The Free Press, 1980) Reprinted with the permission of The Free Press, a divi-

Mergers & Acquisitions Note (European Commission, DC ECFIN, October

with permission; Box 16.1, unnumbered figure: Based on data from Maria

Minniti with William D Bygrave and Erkko Autio, Global Entrepreneurship

Monitor 2005, Executive Report, www.gemconsortium.org {Global Enterprise

Research Association, 2006) Reproduced with permission; Figure 18.12: From

The Institute for Manpower Studies, The Flexible Firm (IMS, 1984) Reproduced

with permission; Box 21.2, unnumbered figure: Based on R&D Scorecard

material is reproduced with the permission of the Controller of Her Majesty’s

Stationery Office (HMSO) under the terms of the click-use licence; Box 21.3,

unnumbered figure: From H M Treasury, Skills in the UK: the long term chal-

lenge, (Leitch Committee interim report, December 2005), Chart 3 (based on

copyright material is reproduced with the permission of the Controller of Her

Majesty’s Stationery Office (HMSO) under the terms of the click-use licence;

Box 23.1, unnumbered figure: From World Investment Report 2005, p 16

(UNCTAD, 2006) Reproduced with permission; Figure 26.11: From UK National

Income and Expenditure 2006 (Office for National Statistics, 2006) © Crown

of the Controller of Her Majesty’s Stationery Office (HMSO) under the terms

of the click-use licence; Figure 29.9: From Pre-Budget Report 2005, Chart 2.1

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xxiv PUBLISHER'S ACKNOWLEDGEMENTS

is reproduced with the permission of the Controller of Her Majesty’s Stationery

Office (HMSO) under the terms of the click-use licence; Box 30.1, unnumbered

mission of the Controller of Her Majesty’s Stationery Office (HMSO)} under the

Office (HMSO) under the terms of the click-use licence; Box 31.1, unnumbered figures: From Pre-Budget Report 2005, Box 3.1, Chart (b) (H M Treasury,

the permission of the Controller of Her Majesty’s Stationery Office (HMSO} under the terms of the click-use licence;

Table 1.3: From SME database 2005 (Office for National Statistics 2006)

permission of the Controller of Her Majesty’s Stationery Office (HMSO) under the terms of the click-use licence; Box 7.1, unnumbered table: From Consumption

of Selected Household Foods, 1942 to 2000 (Department for the Environment, Food and Rural Affairs (DEFRA) © Crown Copyright Crown copyright material

Office (HMSO) under the terms of the click-use licence; Tables 8.1, 8.2, 8.3 and 8.5: From Advertising Statistics Yearbook 2006 (NTC Publications, 2006)

Advertising Association/WARC, reproduced with permission; Table 8.4 from Advertising Statistics Yearbook 2006 (NTC Publications, 2006) Advertising

Association/WARC and Nielsen Media Research, reproduced with permission;

Box 9.4, unnumbered table b: Economies of Scale, The Single Market Review V,

Volume 4, Office of Official Publications of the European Communities

Crown copyright material is reproduced with the permission of the Controller

of Her Majesty’s Stationery Office (HMSO) under the terms of the click-use

licence; Table 16.4: From D J Storey, Understanding the Small-Business Sector

(Routledge, 1994), Thomson Publishing Services, North Way, Andover, Hants

Office (HMSO) under the terms of the click-use licence; Table 22.2 from Trans- port Statistics Great Britain 2005 (Department for Transport, National Statistics),

the terms of the click-use licence; Box 23 1, unnumbered table; From World Invest- ment Report 2005, Annex Table A.1.9, p 267 (UNCTAD, 2006) Reproduced

with permission; Tables 26.1 and 26.2: From UK National Income and

Expenditure 2006 (Office for National Statistics, 2006) © Crown Copyright

2006 Crown copyright material is reproduced with the permission of the Controller of Her Majesty’s Stationery Office (HMSO) under the terms of the click-use licence; Table 27.2 from Monetary and Financial Statistics Interactive

Database (Bank of England) Reproduced with permission; Table 28.1 and

Box 28.4, unnumbered table: From Bankstats (Bank of England) Reproduced

with permission; Table 30.1: National Statistics website (www statistics.gov.uk),

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PUBLISHER'S ACKNOWLEDGEMENTS xxv

Crown copyright material is reproduced with the permission of the Controller of

Her Majesty’s Stationery Office (HMSO) under the terms of the click-use licence;

Box 30.4, unnumbered table: Adapted from Reserve Bank of Australia website

(www.tba.gov.au/Education/monetary_policy.html) Reproduced with permis-

sion; Table 31.2: The Communities Plan (Office of the Deputy Prime Minister,

the permission of the Controller of Her Majesty’s Stationery Office (HMSO)

under the terms of the click-use licence

Page 3: © Photodisc; 59: © Digital Vision; 107: Alamy/RF; 171: Getty/RF;

267: © Digital Vision; 363: Getty Images/Stone; 417: Alamy/Justin Kase; 503:

Page 2: ‘UK market for motor vehicles and components’ The Financial Times,

reports/c35986/); Page 100, Box 5.3: Extracts from ‘The Role of the Speculator’,

Limited, London Reprinted with permission; Page 197, Box 9.5: Extracts from

The Economist Newspapers Limited, London Reprinted with permission; 216:

Barry Lynn ‘Wake up to the power of the new oligopolies’ The Financial Times,

Statement of Mission published on www.benjerry.comission.html, Reprinted with

permission from Ben & Jerry’s Homemade Holdings, Inc.; 320: Extracts from

an article by Ruari McCallion published in The Manufacturer October 2005,

reprinted with permission; Page 344, Box 17.1: ‘The Big Easy’ The Economist,

Reprinted with permission; Page 442, Box 20.3: Extract from Christine Lee,

‘Body Shop takeover - a bad day for animal welfare?’ Environment Channel

(www.999today.com/environment/news/story/3022.html), 11 April 2006

Reproduced with permission from Canall Communications Limited; Page 460,

Box 21.2: Extracts from R&D Scoreboard, 2005 (DTI, 2006) © Crown Copy-

right 2006 Crown copyright material is reproduced with the permission of

the Controller of Her Majesty’s Stationery Office (HMSO); Page 466, Box 21.3:

Extracts from H.M Treasury (2005) Skills in the UK: the long term challenge

Crown copyright material is reproduced with the permission of the Controller

of Her Majesty’s Stationery Office (HMSO); Page 590, Box 26.3: Extract from

‘Consumers have a good run in America’ The Sunday Times, 11 May 2003

Reproduced with permission from News International Syndication Ltd; Page 590,

Box 26.3: Extract from ‘A Return of Inflation? The Economist, 24 June 2006

with permission

Trang 27

xxvi PUBLISHER'S ACKNOWLEDGEMENTS

We are grateful to the Financial Time s Limited for permission to reprint the following material:

Page 58: Birgit Dengel and Claus Hecking ‘Asian appetite could result in cocoa shortage’, Financial Times, 20 February 2006 Copyright © 2006 Financial Times Limited; 106: John Gapper ‘Brands are worth more than designers’, Financial Times, 6 February 2006 Copyright © 2006 Financial Times Limited; 170: Lex ‘Crash test ratings’, Financial Times, 1 May 2006 Copyright © 2006

Financial Times Limited; 266: Bernard Simon “Enterprise seeks new fortunes’,

Financial Times, 14 March 2006 Copyright © 2006 Financial Times Limited; 362: John Willman ‘Business leaders fear minimum wage has reached tipping point’, Financial Times, 12 May 2006 Copyright © 2006 Financial Times Limited; 416: John Kay ‘Why the key to carbon trading is to keep it simple’, Financial Times, 8 May 2006 Copyright © 2006 Financial Times Limited; 502: Martin Wolf ‘Integration marches onward despite growth imbalances’, Financial Times, 24 January 2006 Copyright © 2006 Financial Times Limited; 568: David Pilling ‘Out of the ditch and trundling down the road’, FT Investing

Chris Giles, Scheherazade Daneshkhu and Krishna Guha ‘UK role rise on cards

In some instances we have been unable to trace the owners of copyright material, and we would appreciate any information that would enable us to do so

Trang 28

Beans are worth more than designers

the Financial Times about one

of the topics

Business in a market environment

ức tchön KN TNU NO hottie sterifina eect on aed ete be can Sunetapna dt tr eari ta oe dat ef sce ono bane rpms eee ieee nướng vớ ,

Topical Issues, news articles, hotlinks all set the scene and provide a context for the theory.

Trang 29

xxviii GUIDED TOUR

Definitions for all

key terms are

highlighted in the

text where they

first appear and

are defined in the

margin This is “~~

very useful for

revision and

allows you to see

the terms used in

questions help

Ly» you reflect on what you have just read and to check your understanding

Key ideas are

highlighted and explained where they first appear They are key

elements in the

economist’s toolkit and when ever they recur later in the book,

an icon appears

in the margin These help

students to

‘think like an economist’.

Trang 30

GUIDED TOUR xxix

consistent use of colour " =

is made in the diagrams Tư = which allows you to see ata “#————† se

glance how the diagram is

constructed and the ‘before’ Bản and ‘after’ positions when he the diagram is used to

illustrate the effects of a

at the end of “` sa

understanding at TA «Recreation nh NN , Saba nhac are clear! X

revision tool q ƯƯƯỚNGG book

Trang 31

xxx GUIDED TOUR

racticing and testing your learning

Review questions can

be used for self-testing, qn

or for class exercises or

engi dun dante

KD Tittrefrihionescooeicbbod Renaldo

TH con ch th errititeanrcir4rome

"code secosidcin Để mg gsữIe trườdfen TM

nh dceinrorisanlgiyEit CiEimgse tter

aot

Multiple choice questions on the Companion

Website provide a quick test method for you to

assess progress

Results graph for MCQs on the Companion

ve you instant feedback.

Trang 32

GUIDED TOUR xxxi

Boxes provicle case studies

to show how economics can “are The UN falda minnn wags

particular business ‹ ĐC TT UY

probiems or aspects of the Bi TH otereortonroee T2

box also has questions to Seeeaeee Ree

relate the material back to Savoretivuheasy Seacmmainae

‘bitin aint ark

ratebasaneteAt scatenean

Web material at the end of each part lists Chapter-specific case studies on the Companion additional case studies appearing on the book’s Website allow you to extend study of various topics website and references to various other useful and took at real-world applications

websites,

Trang 33

esearch and nounced the addition of ‘The

the UK and many manufacturers suf-

_, Demand for com-

Tap FINANCIAL TIMES, 21 ApRiL 2006

UK Market for Motor Vehicles

and Components

Markets has an- sumer spending

hit dealerships acyoss Motor Industry Market Review

to have been worth §6ØDn in 2005, up

H

froma $57.82bn in 200:

has demonstrated year-on-year growth since 2001, although the annual rate of increase in 2005 was the lowest since

2001

Four sectors ar Market Review: cars, commercial

vehicles; motoreycles, mopeds and scooters;

and motor components The cars sector

among long~

is the largest in terms of both value and volume, but commercial vehicles was the fastest-growing sector by value and

volume between 2001 and 2005

remains strong,

industry is hea iy dependent on

the health of the UK economy Since 2001, key economic measures such as gross domestic product (GDP), inflation and employment have all had a positive effect on the market, helping

to poost consumer demand for vehicles and components Higher interest rates and rising fuel prices have dampene sales, however, and the increasing volume of BU regulations affecting the motor industry has added substantially

to manufacturers’ costs

oe

2005 was @ difficult ownturn in COR- year for the

new-car market The a

dmarvets.com/reports/c35986)-

S (wwwrresearchan\

fered rising costs mercial vehi

2005, the number of new registrations

4, The market being met by imports

mopeds and scooters increased in 2005, helped by growing sales of motorcycles with engine capack

e examined in this imcreasing demand centimetres (ce) for large-capacity

pikes (over 1000cc), which are popular tinues to penefit from the presence

1 the UK of many of the world’s jeading vehicle manufacturers Competition

ities between 50 cubic and 125cc, and by

distance riders

The motor-components sector con-

however, especially from rivals in Jow-cost countries

The apparent UK market for motor vehicles and components is forecast

to achieve a positive put very modest,

a weaker

car market ymiting the scope for growth The market is forecast to be

a little more buoyant thereafter, although such will depend on economic conditions and any unforeseen negative

, rnin deren cesearchancrarkets.corry reports/ 635986)

x——

Trang 34

| dread admiHing ! am an

economist The cab driver quizzes

you on what is going to happen

to the economy, the dinner

companion turns to talk.to the

person on the other sidé‘and the’

immigration officer says, with

heavy sarcasm, that his country -

Feeds people like you

John Kay, Economists a are hot boring (Financial

: Times, @ May 2006) :-

usinesses play a key role in all our lives Whatever their size, an

whatever the goods or services they provide, they depend on us: as

consumers to buy their products

But just as businesses rely on us for their income, so equally many of us”:

rely on firms for our income The wages we earn depend on our employer's

success, and that success in turn depends on us as Suppliers of labour.:::

And it is not just as customers and workers that we are affected by busi-

ness The success of business in general affects the health of the whole:

economy and thus the lives of us all

The extract opposite from the Financial Times takes the case of the motor: -

vehicle and components industry and identifies some of the factors influ,

encing its likely growth and profitability Some of these factors are Specific’

to the industry Some affect business in general

In Part A of this book, we consider the relationship between business and

economics

In Chapter 1 we look at the structure of industry and its importance in:

determining firms’ behaviour We also look at a range of other factors that

are likely to affect business decisions and how we can set about analysing

the environment in which a firm operates in order to help it devise an

appropriate business strategy

Then, in Chapter 2 we ask what is it that economists do and, in particular,

how economists set about analysing the world of business and the things

businesses do In particular we focus on rational decision making — how to

get the best outcome from limited resources

Finally, in Chapter 3 we look at the different ways in which firms are

organised: at their legal structure, at their internal organisation and at their

Marginal costs

Marginal benefits Rational choices Circular flow of income Transaction costs Principal and agent Business

organisation Price taker Perfectly competitive market Price mechanism Demand

Supply

Trang 36

The business environment and business economics

Business issues covered in this chapter

& What do business economists do?

~=What is meant by the ‘business environment’?

@ How are businesses influenced by their national and global market environment?

@ How are different types of industry classified in the official statistics?

f What things influence a firm’s behaviour and performance?

What is business economics?

What is the role of business economics? What will you be studying in this book?

Clearly we will be studying fivms: the environment in which they operate,

the decisions they make, and the effects of these decisions — on themselves, on

their customers, on their employees, on their business rivals and on the public

at large

But what particular aspects of business does the economist study? Firms are essentially concerned with using inputs to make output Inputs cost money and output earns money The difference between the revenue earned and the costs incurred constitutes the firm’s profit Firms will normally want to make as much

profit as possible, or at the very least to avoid a decline in profits In order to

meet these and other objectives, managers will need to make choices: choices of what types of output to produce, how much to produce and at what price; choices

of what techniques of production to use, how many workers to employ and of

what type, what suppliers to use for raw materials, equipment, etc In each case,

when weighing up alternatives, managers will want to make the best choices

Business economists study these choices They study economic decision making

by firms

The study of decision making can be broken down into three stages

The external influences on the firm (the ‘business environment’) Here we are referring to the various factors that affect the firm that are largely outside its direct control, Examples are the competition it faces, the prices it pays for raw materials, the state of the economy (e.g whether growing or in recession) and

the level of interest rates Businesses will need to obtain a clear understanding of

their environment before they can set about making the right decisions

Trang 37

6 CHAPTER 1 THE BUSINESS ENVIRONMENT AND BUSINESS ECONOMICS

Internal decisions of the firm Given a knowledge of these external factors, how do firms then decide on prices, output, inputs, marketing, investment, etc?

Here the business economist can play a major role in helping firms achieve their business objectives

The external effects of business decision making When the firm has made its

decisions and acted on them, how do the results affect the firm’s rivals, its

customers and the wider public? In other words, what is the impact of a firm’s decision making on people outside the firm? Are firms’ actions in the public

interest, or is there a case for government intervention?

What do business economists do?

Our study of business will involve three types of activity:

& Description For example, we will be describing the objectives of businesses (e.g making profit or increasing market share), the types of market in which firms operate (e.g competitive or non-competitive) and the constraints on decision making (e.g the costs of production, the level of consumer demand and the state of the economy)

m Analysis For example, we will analyse how a firm’s costs and profits are likely to vary with the amount of output it produces and what would be the consequences of a change in consumer demand or a change in the price charged by rivals We will also analyse the upswings and downswings in the economy: something that will have a crucial bearing on the profitability of

many companies

Recommendations Given the objectives of a firm, the business economist can belp to show how those objectives can best be met For example, if a firm wants to maximise its profits, the business economist can advise on what

prices to charge, how much to invest, how much to advertise, etc Of course,

any such recommendations will only be as good as the data on which they

are based, In an uncertain environment, recommendations will necessarily be more tentative

In this chapter, as an introduction to the subject of business economics, we shall consider the place of the firm within its business environment, and assess how these external influences are likely to shape and determine its actions In order

to discuss the relationship between a business’s actions and its environment,

we first need to define what the business environment is

Trang 38

11 THE BUSINESS ENVIRONMENT 7

affect the tobacco industry Similarly, businesses will be affected by the legal frame-

work in which they operate Examples include industrial relations legislation,

product safety standards, regulations governing pricing in the privatised industries

and laws preventing collusion between firms to keep prices up

Economic factors Economic factors can range from big to small, from local

to national to international, from current to future; from the rising costs of

raw materials to the market entry of a new rival, from the forthcoming Budget

to the instability of international exchange rates, from the current availability

of investment funds to the likely future cash flow from a new product Business

must constantly take such factors into account when devising and acting upon

its business strategy

It is normal to divide the economic environment in which the firm operates

into two levels:

@ The microeconomic environment This includes all the economic factors that

are specific to a particular firm operating in its own particular market Thus

one firm may be operating in a highly competitive market, whereas another

may not; one firm may be faced by rapidly changing consumer tastes (e.g a

designer clothing manufacturer), while another may be faced with a virtually

constant consumer demand (e.g a potato merchant); one firm may face rapidly

rising costs, whereas another may find that costs are constant or falling

a The macroeconomic environment This is the national and international

economic situation in which business as a whole operates Business in general

will fare much better if the economy is growing than if it is in recession In

examining the macroeconomic environment, we will also be looking at the

policies that governments adopt in their attempt to steer the economy, since

these policies, by affecting things such as taxation, interest rates and exchange

rates, will have a major impact on firms

Social/cultural factors This aspect of the business environment concerns social

attitudes and values These include attitudes towards working conditions and

the length of the working day, equal opportunities for different groups of people

(whether by ethnicity, gender, physical attributes, etc.), the nature and purity of

products, the use and abuse of animals, and images portrayed in advertising The

social/cultural environment also includes social trends, such as an increase in

the average age of the population, or changes in attitudes towards seeking paid

employment while bringing up small children In recent times, various ethical

issues, especially concerning the protection of the environment, have had a big

impact on the actions of business and the image that many firms seek to present,

Technological factors Over the last twenty years the pace of technological change

has quickened This has had a huge impact not only on how firms produce pro-

ducts, but also on how their business is organised The use of robots and other

forms of computer-controlled production has changed the nature of work for PEST analysi

many workers It has also created a wide range of new opportunities for businesses, _ Where the political,

many of which are yet to be realised The information-technology revolution is econdthiic, social and also enabling much more rapid communication and making it possible for many bi i02 Xe

workers to do their job from home or while travelling tro hentare

assessed bya

The division of the factors affecting a firm into political, economic, social and _ businéss s0.as to

technological is commonly known as a PEST analysis (or PESTEL analysis, devise future

where environmental and legal factors need to be examined in more depth) This business strategy

Trang 39

8 CHAPTER 1 THE BUSINESS ENVIRONMENT AND BUSINESS ECONOMICS

The biotechnology industry

Its business environment

There are few areas of business that cause such contro-

versy 4S biotechnology It Ras generated new medicines,

created pest-resistant ‘crops, developed eco- friendly’ ~

industrial: processes, and, through “genetic mapping, is

providing incalculable advances 'ín: ‘gene therapy ‘These

developments, “however, have® ‘vaised profound: ethical

issues, Many areas of biotechnology are uncontentious, :

‘but ‘genetic modification and cloning have met with cone."

siderable public hostility, colouring many people's views :

of piotechnology i in-general

‘Biotechnology refers tothe: application of knowledge

about lWving organisms: and ‘their components Ao: make:

new products “and: develop: new Industrial processes,

For:many itis seen: ast

be worth some €2000 :

Ih ‘global terms, the: USA: ‘dominates this sector: tn

Europe, ‘the UK: isthe ‘region's leading : ‘biotechnology

centre: it has.-some 450 “specialist: biotech: companies, :

“which is equivalentto:.23 per cent of Europe’ s biotechno- `

logy sector, and is: worth an: estimated €5041millloriin':

revenue, It employs: 22.404 siaff of which: 9644 2 are.in

research and development

sized businesses ln the EU; ‘some 51 per on of these’ ấm

an ‘human ‘healthcare, 35 per cent in’servicé ‘biotechno-

(2007-13) Pro

: ventures.’

“fext wave in ‘the develop:

-ment.of the knowledge: “based economy: ‘According to: EU”:

estimates, b y 2010 the biotechnology sector: rau well ae

“ but encourages firms to form ‘collaborative agreements, :

‘generates It also ‘offers help for biotectinology busi-

“hess staft-lips, and guidance o on faentiing a and gaining ˆ

“financial support.”

The EU too provides a:range of resources to “Support

‘business within the biotech sector: “The EUREKA pro- :

“gramme attempts to help create: pan- -EU ‘partnerships, and the EU Seventh Framework Programme for research

financing for such, Sllaborative

;¿Si<ch support by’ “governments is seen asa crucial requirement forthe creation: of a successful biotechno- : logy: sector; as product development within: the industty

can take up to 12 years

sơ he majority: of funding for the lien é comes * som

‘ ‘yenturé: capital’ Gavestmient by individuals -and: firms sin'new;and: possibly: risky sectors) Even ‘though: the UK:

is Europe's latgest venture: capital: market, such funding

nis highly: volatile: ‘Many: of: the biotech companies that 'ạ :listed on the stock: market; after significant: share, price fises in 1999:and 2000, then saw their: share: prices collapse, along with those of various hi tech ‘companies lút ; wi hl 4a “depressed: te km riệt, raising | finance becomes

logy (bioprocessing, ‘chemicals, bioinformatics and in,

‘genoinics), and 14 ‘per cer

environmental product

taps ‘into the-UK’s strong science base.”

In: addition to -such: clusterin; the: biotech industry

“is well ‘supported bythe UK government and other charite ; tần

From the brief outline above, Identify ihe poltical economic, social and technological dimensions shaping the biotechno-

‘logy industry's business environment `

able organisations such’ as ‘the Wellcome Trust; Such

“support helps to fund what is a highly research: intensive

sector, The UK government not only provides finance,

Trang 40

1.2 THE STRUCTURE OF INDUSTRY 9

technological factors determine economic ones, such as costs

and productivity; technological progress often reflects the

desire of researchers to meet social or environmental! needs;

and so on, analysis would you locate training and

As well as such interaction, we must also be aware of the \ education?

fact that the business environment is constantly changing

Some of these changes are gradual, some are revolutionary To be successful, a

business will need to adapt to these changes and, wherever possible, take advantage

of them Ultimately, the better business managers understand the environment in

which they operate, the more likely they are to be successful, either in exploiting

ever changing opportunities or in avoiding potential disasters

The behaviour and performance of firms is affected by the business environment

The business environment includes economic, political/legal, social/cultural and

technological factors

Although we shall be touching on political, social and technological factors,

it is economic factors which will be our main focus of concern when examining

the business environment

One of the most important and influential elements of the business environment

is the structure of industry How a firm performs depends on the state of its

particular industry and the amount of competition it faces A knowledge of the

structure of an industry is therefore crucial if we are to understand business

behaviour and its likely outcomes

In this section we will consider how the production of different types of goods

and services are classified and how firms are located into different industrial

groups

Classifying production

When analysing production it is common to distinguish three broad categories:

Primary production This refers to the production and extraction of natural

resources such as minerals and sources of energy It also includes output from

agriculture,

Secondary production This refers to the output of the manufacturing and

construction sectors of the economy

Tertiary production This refers to the production of services, and includes

a wide range of sectors such as finance, the leisure industry, retailing and

transport

Figures 1.1 and 1.2 show the share of output (or gross domestic product (GDP))

and employment of these three sectors in 1974 and 2005, They illustrate how the

tertiary sector has expanded rapidly In 2005, it contributed some 74 per cent to

The value of output produced within the country over 4 twelve-month period.

Tiêu đề	Economics for Business
Tác giả	John Sloman, Kevin Hinde
Chuyên ngành	Economics
Thể loại	Textbook
Năm xuất bản	2007
Thành phố	Harlow, England

Định dạng
Số trang	826
Dung lượng	39,39 MB