Economics for Managers



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Economics for Managers
This course is split into micro and macroeconomics. The aim of the course is to make students aware of how the micro and macro economic environment can affect business behaviour. In the first part of the course we describe how the market mechanism operates, and evaluate how the nature of competition faced by a business can affect price, output and profit. Emphasis is placed on competition between the few (oligopoly) and so we also discuss strategic business behaviour in some detail. The second part of the course is concerned with the macroeconomic environment, and focuses on the short-run. We consider the determinants and consequences of fluctuations in the business cycle. A substantial part of the course is also devoted to international issues, such as why countries trade, the determination of exchange rates and the role of government in controlling the macro economy. Throughout the course we will focus on issues using case studies, data and empirical evidence.

You are strongly advised to read the recommended textbook and either the Financial Times or the Wall Street Journal.


Recommended textbook:

Dermot McAleese Economics for Business, Financial Times / Prentice Hall, 2001


Recommended supplementary texts:
J. Sloman and M. Sutcliffe Economics for Business, Financial Times / Prentice Hall, 2001.

C. Mulhearn, H. R. Vane and J. Eden Economics for Business, Pelgrave Foundations, 2001.

A. Griffiths and S. Wall Applied Economics, Financial Times / Prentice Hall, 2001.
Web sites:

You can liven up this course by referring to current policy issues. A lot of information is now available on the internet and I would strongly recommend you to get acquainted with the sites listed below which produce some very interesting material for this course. Do please try them.



1. www.oecd.org/eco/

Look for Working Papers and Economic Surveys. The OECD also has a good database for many countries as well as excellent commentary and analysis.



2. www.hm-treasury.gov.uk/

This is excellent for articles relating to current fiscal and monetary policy in UK. It also provides some excellent macroeconomic data not only for the UK but for all the world's major economies (but excluding China).



3. www.bankofengland.co.uk

Particularly useful for obtaining up-to-the-minute articles by members of the Monetary Policy Committee (MPC) at the Bank of England and for looking through the MPC's monthly minutes. E.g. go to Publications > Speeches > Speeches by speaker > Dr Sushil Wahdwani (and so on).



4. Federal Reserve Board (USA)

This is the Federal Reserve Board’s web site. It has a lot of useful articles and up-to-date information and commentary on current events.



http://www.federalreserve.gov/pubs/feds/

http://ideas.uqam.ca/EDIRC/data/frbgvus.html

5. OECD http://www.oecd.org/statistics/#ecostat

This site is very useful for historical data and for the latest available data for many countries (including transitional economies and emerging economies).



6. Data sources for a wide range of countries can be found at the following web site:

http://www.geoinvestor.com/
Test yourself on the principles of economics. To do this you can use the WinEcon programme which is accessible over the intra-net. Go to: http://www.lums.lancs.ac.uk/ECON/DEFAULT.HTM for advice on how to gain access. This site also provides a range of links to many other useful web sites, including on-line textbooks.
I. The Micro Economy
Week 1: The market system

Markets versus planning; the operation of markets; the determinants of consumer demand; the supply of goods and services; equilibrium in markets; markets in action.


Reading:

McAleese, chapter 3 ‘The market system in action’ and chapter 4 ‘Market demand

And the pricing decision’.

Sloman and Sutcliffe, chapter 4 ‘The working of competitive markets’ and chapter 5

‘Business in the market environment’.

Mulhearn, Vane and Eden, chapter 2 ‘The market’.



Week 2: The Firm

Measuring costs and revenue; scale economies and minimum efficient scale of operation; profit maximisation; introduction to competition.


Reading:

McAleese, chapter 5 ‘The firm in a competitive market’.

Sloman and Sutcliffe, chapter 9 ‘Costs of production’ and chapter 10 ‘revenue and

profit’.


Mulhearn, Vane and Eden, chapter 3 ‘The firm’.

Griffiths and Wall chapter 3 ‘Firm objectives and firm behaviour’ and chapter 5 ‘Mergers and acquisitions in the growth of the firm’


For surveys of industrial sectors visit: http://www.ft.com
Week 3: Competition between the few

Characteristics of oligopolistic markets; types of oligopoly; strategy; analysing strategy using game theory; examples of oligopolistic markets.


Reading:

McAleese, chapter 6 ‘The economics of market power’.

Sloman and Sutcliffe, chapter 12, pp236-252 ‘Profit maximisation under imperfect

competition’.

Mulhearn, Vane and Eden, chapter 5, pp113-127 ‘Market concentration and power’.

Griffiths and Wall chapter 6 ‘Oligopoly’.

Visit the following website to play a game of strategy: http://serendip.brynmawr.edu/playground/pd.html
Week 4: Monopoly and market power

A definition of monopoly; natural monopoly; the welfare effects of monopoly power; competition policy and the control of monopolies and oligopolies.


Reading:

McAleese, chapter 6 ‘The economics of market power’ and chapter 7 ‘Competition

policy, privatisation and regulation’.

Sloman and Sutcliffe, chapter 11, pp220-230 ‘Profit maximisation under perfect

competition and monopoly’.

Mulhearn, Vane and Eden, chapter 5, pp106-112 ‘Market concentration and power’.


For reports on investigations of British industry visit: http://www.competition-commission.gov.uk/
Week 5: Market failure and government intervention

Why governments intervene in markets; types of market failure; environmental policy and business.


Reading:

McAleese, chapter 9 ‘Business and the environment’.

Sloman and Sutcliffe, part G ‘The relationship between government and business’,

especially chapters 19 and 20.

Mulhearn, Vane and Eden, chapter 7 ‘Business and government’.
For reports on investigations of British industry visit: http://www.competition-commission.gov.uk/

For reports on UK policy on the environment visit: http://www.defra.gov.uk/environ/envfrm.htm


Assessment: Topics for group projects (select one topic only. Further guidance will be issued in due course.)

1. An investigation into the nature of competition in the European motor vehicle manufacturing sector and the implications for UK and EU competition policy.


2. The environment, government and business.
3. Mergers and acquisitions in the UK banking sector: Past, present and future.
4. Competitive advantage and clusters in the IT industry in Bangalore or Silicon Valley
5. Analysing company strategy from an economic perspective: A case study.


II. The Macro Economy
Week 6: An overview of the economy as a whole

The macro economy

The demand side of the economy

- consumption, investment, government and foreign trade

Determinants of national income

Supply-side constraints on national output

Aggregate demand and aggregate supply: a model of the macro-economy
Reading:

McAleese, chapter 11. ‘Aggregate supply, aggregate demand and the price level’.

Griffiths and Wall, chapter 16, ‘Consumption and saving’; chapter 17, ‘Investment’
Week 7: The government and the macro-economy

Policy objectives

Policy instruments

Business fluctuations

Government expenditure and taxation

Government debt


Reading:

McAleese, chapter 15, ‘Fiscal policy, budget deficits and government debt’..

Sloman and Sutcliffe, chapter 29, ‘Demand-side policy’; chapter 25, ‘The macroeconomic environment for business’

Mulhearn et al., chapter 9, ‘The macroeconomy, macroeconomic policy and business’; chapter 12, ‘Stabilizing the economy’.

Griffiths and Wall, chapter 18, ‘Public expenditure’; chapter 19, ‘Taxation’.
Week 8: Money and the economy

The financial sector

Monetary policy
Reading:

McAleese, chapter 12, ‘Price stability, inflation and central banks’.

Sloman and Sutcliffe, chapter 27, ‘Money and interest rates’.

Griffiths and Wall, chapter 24, ‘Managing the economy’; chapter 20, ‘Money and EMU’; chapter 21, ‘Financial institutions and markets’.


Week 9: Inflation and unemployment

Causes of inflation

Costs of inflation

Control of inflation

Causes of unemployment

The natural rate of unemployment

Unemployment policy
Reading:

McAleese, chapter 14, ‘Unemployment and the labour market’.

Mulhearn et al., chapter 10, ‘Unemployment and inflation’.

Griffiths and Wall, chapter 22, ‘Inflation’ chapter 23, ‘Unemployment’.


Week 10: The international economy: the balance of payments and exchange rates

The balance of payments: determinants

The exchange rate

- determinants of the exchange rate

- fixed v. floating rates

Monetary unions: EMU

Globalisation: inter-dependence and instability
Reading:

McAleese, chapter 20, ‘The balance of payments: what it is and why it matters; chapter 21, ‘Coping with exchange rates’; chapter 22, ‘Exchange rate regimes and the euro’.

Sloman and Sutcliffe, chapters 22-24, ‘Business in the international environment’; chapter 26, ‘The balance of trade and the exchange rate’; chapter 31, ‘International economic policy’.

Mulhearn et al., chapter 14, ‘The balance of payments and exchange rates’.



Griffiths and Wall, chapter 25, ‘Exchange rates’; chapter 27, ‘Free, trade, regional trading blocs and protection.

Topics for projects
Macro-economic policymaking in emerging economies: a case study of China
Multinational enterprises and the global economy
The transitional economies of eastern Europe: preparing for EU membership
The inter-relatedness of the world’s major economies: the Big 3
Inflation: trends, causes, consequences and cures


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