Economics for Business, Ninth Edition
John Sloman, Dean Garratt, Jon Guest and Elizabeth Jones
Detailed contents
About the authors v
Preface xv
Publisher’s acknowledgements xxiii
Part A BUSINESS AND ECONOMICS
1 The business environment and business economics 4
1.1 The business environment 5
1.2 The structure of industry 11
1.3 The determinants of business performance 14
Box 1.1 A Lidl success story 6
Box 1.2 The biotechnology industry 9
Summary 15
Review questions 15
2 Economics and the world of business 16
2.1 What do economists study? 16
2.2 Business economics: microeconomic choices 18
2.3 Business economics: the macroeconomic environment 22
2.4 Techniques of economic analysis 25
Box 2.1 What, how and for whom? 20
Box 2.2 The opportunity costs of studying economics 22
Box 2.3 Looking at macroeconomic data 24
Summary 25
Review questions 26
3 Business organisations 27
3.1 The nature of firms 27
3.2 The firm as a legal entity 30
3.3 The internal organisation of the firm 33
Box 3.1 Exploiting asymmetric information 31
Box 3.2 Managers, pay and performance 34
Box 3.3 The changing nature of business 38
Summary 39
Review questions 39
Additional Part A case studies on the Economics for
Business student website 40
Websites relevant to Part A 40
Part B BUSINESS AND MARKETS
4 The working of competitive markets 44
4.1 Business in a competitive market 44
4.2 Demand 47
4.3 Supply 50
4.4 Price and output determination 53
Box 4.1 UK house prices 55
Box 4.2 Stock market prices 58
Box 4.3 Controlling prices 60
Summary 62
Review questions 62
5 Business in a market environment 64
5.1 Price elasticity of demand 65
5.2 The importance of price elasticity of demand to business decision making 67
5.3 Other elasticities 70
5.4 The time dimension of market adjustment 74
5.5 Dealing with uncertainty 79
Box 5.1 The measurement of elasticity 69
Box 5.2 Elasticity and the incidence of tax 72
Box 5.3 Adjusting to oil price shocks 76
Box 5.4 Bubble, bubble, toil and trouble 80
Summary 83
Review questions 84
Additional Part B case studies on the Economics for
Business student website 84
Websites relevant to Part B 85
Part C BACKGROUND TO DEMAND
6 Demand and the consumer 88
6.1 Marginal utility theory 89
6.2 Demand under conditions of risk and uncertainty 93
6.3 The characteristics approach to analysing
consumer demand 103
Box 6.1 Calculating consumer surplus 91
Box 6.2 The marginal utility revolution: Jevons,
Menger, Walras 92
Box 6.3 Adverse selection in the insurance market 100
Box 6.4 Dealing with moral hazard and adverse selection 101
Summary 108
Review questions 109
Web appendix in the case studies section of the
Economics for Business student website 110
7 Behavioural economics of the consumer 111
7.1 How does behavioural economics differ from
standard theory? 111
7.2 Framing and the reference point for decisions 115
7.3 Caring about the pay-offs to others 120
7.4 Government policy to influence behaviour 122
Box 7.1 Choice overload 114
Box 7.2 The endowment effect 116
Box 7.3 The best made plans 118
Box 7.4 A simple experiment to test for social
preferences 121
Summary 123
Review questions 124
8 Firms and the consumer 125
8.1 Estimating demand functions 126
8.2 Forecasting demand 129
8.3 Product differentiation 132
8.4 Marketing the product 133
8.5 Advertising 137
Box 8.1 The battle of the brands 134
Box 8.2 Different types of online advertising 140
Summary 141
Review questions 141
Additional Part C case studies on the Economics for
Business student website 142
Websites relevant to Part C 142
Part D BACKGROUND TO SUPPLY
9 Costs of production 146
9.1 The meaning of costs 146
9.2 Production in the short run 147
9.3 Costs in the short run 151
9.4 Production in the long run 155
9.5 Costs in the long run 161
Box 9.1 Should we ignore sunk costs? 148
Box 9.2 How vulnerable are you? 154
Box 9.3 Lights, camera, action 158
Box 9.4 Minimum efficient scale 162
Box 9.5 Fashion cycles 164
Summary 165
Review questions 166
10 Revenue and profit 167
10.1 Revenue 167
10.2 Profit maximisation 172
Box 10.1 Costs, revenue and profits 171
Box 10.2 Selling ice cream when I was a student 174
Box 10.3 Monarch’s turbulence 175
Summary 177
Review questions 177
Additional Part D case studies on the Economics for
Business student website 178
Websites relevant to Part D 178
Part E SUPPLY: SHORT-RUN DECISION
MAKING BY FIRMS
11 Profit maximisation under perfect competition and monopoly 182
11.1 Alternative market structures 182
11.2 Perfect competition 187
11.3 Monopoly 191
11.4 Potential competition or potential monopoly?
The theory of contestable markets 196
Box 11.1 A fast food race to the bottom 186
Box 11.2 E-commerce 192
Box 11.3 Premier league football: the Sky is
the limit 197
Box 11.4 ‘It could be you’ 198
Summary 200
Review questions 200
12 Profit maximisation under imperfect
competition 202
12.1 Monopolistic competition 202
12.2 Oligopoly 205
12.3 Game theory 216
Box 12.1 OPEC 208
Box 12.2 Oligopoly and oligopsony 212
Box 12.3 The prisoners’ dilemma 218
Box 12.4 The Hunger Games 222
Summary 222
Review questions 223
13 Alternative theories of the firm 225
13.1 Problems with traditional theory 225
13.2 Behavioural economics of the firm 227
13.3 Alternative maximising theories 228
13.4 Multiple aims 234
Box 13.1 How firms increase profits by understanding
‘irrational’ consumers 229
Box 13.2 Constraints on firms’ pricing 231
Box 13.3 Stakeholder power 235
Summary 236
Review questions 237
Additional Part E case studies on the Economics for
Business student website 237
Websites relevant to Part E 238
14 An introduction to business strategy 242
14.1 What is strategy? 243
14.2 Strategic analysis 246
14.3 Strategic choice 251
14.4 Business strategy in a global economy 253
14.5 Strategy: evaluation and implementation 255
Box 14.1 Business strategy the Samsung way 244
Box 14.2 Hybrid strategy 253
Summary 256
Review questions 256
15 Growth strategy 257
15.1 Growth and profitability 257
15.2 Constraints on growth 258
15.3 Alternative growth strategies 260
15.4 Internal growth 261
15.5 External growth through merger 264
15.6 External growth through strategic alliance 269
15.7 Explaining external firm growth: a transaction
costs approach 271
Box 15.1 Global merger activity 266
Box 15.2 How many firms does it take to make an iPhone? 272
Box 15.3 The day the world stopped 274
Summary 276
Review questions 276
16 The small-firm sector 277
16.1 Defining the small-firm sector 277
16.2 The survival, growth and failure of small businesses 282
16.3 Government assistance and the small firm 286
Box 16.1 Capturing global entrepreneurial spirit 280
Box 16.2 Hotel Chocolat 285
Summary 289
Review questions 289
17 Pricing strategy 290
17.1 Pricing and market structure 291
17.2 Alternative pricing strategies 292
17.3 Price discrimination 294
17.4 Multiple product pricing 304
17.5 Transfer pricing 305
17.6 Pricing and the product life cycle 307
Box 17.1 Personalised pricing in digital markets 296
Box 17.2 A quantity discount pricing strategy 300
Box 17.3 Selling goods separately or together?
The impact of bundling 306
Summary 309
Review questions 309
Additional Part F case studies on the Economics for
Business student website 310
Websites relevant to Part F 310
Part F SUPPLY: ALTERNATIVE STRATEGIES Part G THE FIRM IN THE FACTOR MARKET
18 Labour markets, wages and industrial relations 314
18.1 Market-determined wage rates and employment 314
18.2 Power in the labour market 319
18.3 Low pay and discrimination 326
18.4 The flexible firm and the market for labour 334
Box 18.1 What do post, airlines, bins, buses, rail, tube and
universities have in common? 324
Box 18.2 UK tax credits 330
Box 18.3 New ways of working 336
Summary 338
Review questions 339
19 Investment and the employment of capital 340
19.1 The pricing of capital and capital services 340
19.2 The demand for and supply of capital services 342
19.3 Investment appraisal 344
19.4 Financing investment 349
19.5 The stock market 356
Box 19.1 Investing in roads 346
Box 19.2 The ratios to measure success 350
Box 19.3 Financing innovation 354
Summary 359
Review questions 360
Additional Part G case studies on the Economics for
Business student website 360
Websites relevant to Part G 361
Part H THE RELATIONSHIP BETWEEN GOVERNMENT AND BUSINESS
20 Reasons for government intervention in the market 364
20.1 Markets and the role of government 364
20.2 Types of market failure 365
20.3 Government intervention in the market 376
20.4 The case for less government intervention 381
20.5 Firms and social responsibility 382
Box 20.1 Can the market provide adequate protection
for the environment? 370
Box 20.2 A commons solution 375
Box 20.3 Deadweight loss from taxes on goods and
services 379
Box 20.4 ESG scores 387
Summary 388
Review questions 389
21 Government and the firm 390
21.1 Competition policy 390
21.2 Policies towards research and
development (R&D) 399
21.3 Policies towards training 401
Box 21.1 Expensive chips or are they? 395
Box 21.2 The R&D scoreboard 402
Box 21.3 The Apprenticeship Levy 408
Summary 409
Review questions 409
22 Government and the market 410
22.1 Environmental policy 410
22.2 Transport policy 423
22.3 Privatisation and regulation 430
Box 22.1 The economics of biodiversity 412
Box 22.2 Placing a price on CO2 emissions 420
Box 22.3 Road pricing in Singapore 429
Box 22.4 The right track to reform? 432
Summary 436
Review questions 437
Additional Part H case studies on the Economics
for Business student website 438
Websites relevant to Part H 438
Part I BUSINESS IN THE INTERNATIONAL ENVIRONMENT
23 Globalisation and multinational business 443
23.1 Globalisation: setting the scene 443
23.2 What is a multinational corporation? 446
23.3 Trends in multinational investment 448
23.4 Why do businesses go multinational? 453
23.5 The advantages of MNC investment for the
host state 457
23.6 The disadvantages of MNC investment for the
host state 459
23.7 Multinational corporations and developing
economies 460
Box 23.1 M&As and greenfield FDI 450
Box 23.2 Attracting foreign investment 458
Box 23.3 Grocers go shopping in the Eastern aisle 463
Summary 464
Review questions 464
24 International trade 465
24.1 Trading patterns 465
24.2 The advantages of trade 469
24.3 Arguments for restricting trade 472
24.4 The world trading system and the WTO 477
Box 24.1 Strategic trade theory 474
Box 24.2 Giving trade a bad name 476
Box 24.3 The Doha development agenda 478
Summary 479
Review questions 480
25 Trading blocs 482
25.1 Preferential trading 483
25.2 Preferential trading in practice 484
25.3 The European Union 486
25.4 The UK and Brexit 490
Box 25.1 Features of the European single market 488
Box 25.2 The Single Market Scoreboard 489
Summary 493
Review questions 494
Additional Part I case studies on the Economics
for Business student website 494
Websites relevant to Part I 494
Part J THE MACROECONOMIC ENVIRONMENT
26 The macroeconomic environment of business 499
26.1 Introduction to the macroeconomic environment 500
26.2 Economic volatility and the business cycle 506
26.3 The circular flow of income 511
26.4 Unemployment 514
26.5 Inflation 520
26.6 Long-term economic growth 526
Box 26.1 Output gaps 508
Box 26.2 The duration of unemployment 518
Box 26.3 Output gaps and inflation 524
Box 26.4 The UK’s stock of human capital 528
Summary 531
Review questions 532
Appendix: Measuring national income and
output 533
Summary to appendix 536
Review questions to appendix 536
27 The balance of payments and exchange rates 537
27.1 The balance of payments account 537
27.2 The exchange rate 541
27.3 Exchange rates and the balance of payments 546
27.4 Fixed versus floating exchange rates 548
Box 27.1 Nominal and real exchange rates 543
Box 27.2 Dealing in foreign exchange 546
Box 27.3 The importance of international financial
movements 547
Box 27.4 The euro/dollar see-saw 550
Summary 553
Review questions 554
28 The financial system, money and interest rates 555
28.1 The meaning and functions of money 556
28.2 The financial system 557
28.3 The supply of money 573
28.4 The demand for money 581
28.5 Equilibrium 583
28.6 Money, aggregate demand and inflation 585
Box 28.1 Financial intermediation 558
Box 28.2 Growth of banks’ balance sheets 563
Box 28.3 Residential mortgages and securitisation 566
Box 28.4 Minsky’s financial instability hypothesis 581
Summary 587
Review questions 589
29 Business activity, unemployment and inflation 590
29.1 The simple Keynesian model of business activity 591
29.2 Alternative perspectives on aggregate supply 596
29.3 Output, unemployment and inflation 601
29.4 Inflation rate targeting and unemployment 609
29.5 The volatility of private-sector spending 611
Box 29.1 Short-run aggregate supply 599
Box 29.2 The accelerationist hypothesis 607
Box 29.3 Confidence and spending 618
Summary 619
Review questions 621
Additional Part J case studies on the Economics for
Business student website 622
Websites relevant to Part J 623
Part K MACROECONOMIC POLICY
30 Demand-side policy 626
30.1 Fiscal policy and the public finances 626
30.2 The use of fiscal policy 631
30.3 Monetary policy 637
30.4 Attitudes towards demand management 643
Box 30.1 The fiscal impulse 632
Box 30.2 The evolving fiscal frameworks in the
European Union 634
Box 30.3 The operation of monetary policy in the UK 641
Box 30.4 Quantitative easing 644
Box 30.5 Monetary policy in the eurozone 646
Summary 649
Review questions 650
31 Supply-side policy 651
31.1 Supply-side problems 651
31.2 Market-orientated supply-side policies 659
31.3 Interventionist supply-side policies 662
31.4 Regional policy 666
Box 31.1 Measuring labour productivity 654
Box 31.2 Getting intensive with capital 656
Box 31.3 Apprenticeships and the economic
arguments for intervention 664
Summary 669
Review questions 670
32 International economic policy 671
32.1 Global interdependence 671
32.2 International harmonisation of economic
policies 673
32.3 European economic and monetary union 675
32.4 Alternative policies for achieving currency stability 683
Box 32.1 Trade imbalances in the USA and China 674
Box 32.2 Optimal currency areas 679
Box 32.3 The Tobin tax 686
Summary 688
Review questions 689
Additional Part K case studies on the Economics for
Business student website 689
Websites relevant to Part K 690
Web appendix W:1
Key ideas K:1
Glossary G:1
Index I: 1