eco501 business economics

Unit title: Business Economics

Unit code: ECO501

Credit points:

8cp

Unit description:

This unit offers an intensive ‘mainstream’ introduction to economic principles for a business person’s understanding of the fundamental economic problems of the firm and of the society in which that firm operates from. This subject provides an opportunity to study a mix of both business and economics necessary for a career in business. A strong grounding in economic theory and applications will offer us tools of analysis, which can then be applied to business related modules. You will learn the process of strategic analysis, pricing, company organization and structure, competitive advantage and innovation

Unit objectives:

This unit is designed to enable students to:

Knowledge1) Have an in-depth knowledge and understanding of methods and

theory in economics and its practical application to business, industrial, financial or government environment

2) Understand that applying knowledge of economics is crucial in a world of integrating global markets and the growing influence of the Internet.

3) Understand that economics significantly enhances strategic decision making and problem solving for the efficient functioning of business enterprises

Skills1. Emphasize the role of economics in the formation of policy by

individuals, companies and governments2. Develop an ability to use different forms of economic reasoning in a

variety of contexts 3. Develop critical analytical problem-based learning skills as a

professional economist

Values/Attitudes1. Participate in a rigorous training of economic analysis2. Focus on business decisions rather than public policy analysis3. Appreciate the role played by business in a modern economy

Unit outcomes:

1. Emphasize the practical business applications of economic theory

2. Examines how business economics can influence such areas as business strategy

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Readings: 1. McConnell, C.R. & Brue, S.L. (2002), Economics, 15th edn., McGraw-Hill

2. Parkin, M. (2000), “Economics”, International Edition, Addison-Wesley Publishing Co

Supplementary readings

1. Mankiw, N.G. (2003), Principles of Economics, 3rd edn., South-Western College Publishing

2. Friedman, M. (2002), Capitalism and Freedom : Fortieth Anniversary Edition, University of Chicago Press

3. Pindyck, R.S. & Rubinfeld, D.L. (2000), Microeconomics 5th edn., Prentice Hall

4. Nicholson, W. (2001), Microeconomic Theory: Basic Principles and Extensions, 8th edition South-Western College Publishing

5. Varian, H.R. (2002), Intermediate Microeconomics: A Modern Approach, 6th edn., W. W. Norton & Company

6. McConnell, C.R. & Brue, S.L. (2004), Economics: Principles, Problems, and Policies, 16th edn., Irwin/McGraw-Hill

7. Schiller, B.R. (2001), Essentials of Economics, 4th edn, McGraw-Hill/Irwin

8. Gregory, P.R. (2001), Essentials of Economics, 5th edn., Addison Wesley Publishing

9. Case, K.E. & Fair, R.C. (2003), Principles of Economics , 7th edn., Prentice Hall

10. Samuelson, W.F. & Marks, S.G. (2002), Managerial Economics, 4th edn., Wiley Publishing

11. Hall, R.E. & Lieberman, M. (2004), Economics : Principles and Applications, 3rd edn., South-Western College Publishing

12. Frank, R.H. & , Bernanke, B. (2003), Principles of Economics, 2nd edn., McGraw-Hill/Irwin

13. Baumol, W.J., & Blinder, A.S. (2004), Economics : Principles and Policy, 2004 Update, 9th edn., South-Western College Publishing

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Journals1. Asia Pacific Journal of Management2. Business Week3. Far Eastern Economic Review4. Fortune5. Forbes6. Harvard Business Review7. Journal of Marketing8. Newsweek9. Sloan Management Review10. Time11. The Economist

Unit contents: TOPICS

1. Introduction to Economics

Nature and scope of economics

Basic economic problem

Individual demand and supply

The market economy

The public sector

Learning actions:

Review Exercises and Problems:

(a) Why is the study of economics important?(b) What are the 5 big questions that face economists?(c) What is the fundamental economic problem?

Readings:Cairncross, Sir A. (May 1985). Economics in Theory and Practice, American Economic Review, vol.75, no.2, pp. 1-14.

Blinders, A.S. (2004), Microeconomics: Principles & Policy; 2004 Update, South-Western College Pub.

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2. Microeconomics Demand, supply and price - elasticity and government controlled prices

Consumer sovereignty - consumer behavior and maximizing utility

Production - revenue and cost

Competitive models – perfect competition, monopoly, monopolistic, oligopoly

Efficiency – technological advances and R&D innovations

Short-run and the long-run

Learning actions:


(a) Describe the main influences of demand and supply?(b) Explain the determination of price and quantity?(c) Identify and define the different elasticities of demand and supply?(d) What are the obstacles to efficiency in our economy?

Readings:Lancaster, K.J. (1971), Consumer Demand : A New Approach, Columbia University Press

Becker, G.S. (1976), The Economic Approach to Human Behavior, The University of Chicago Press

Stiglitz, J. & Mathewson, G.F., (1986), New Developments in the Analysis of Market Structure, MIT Press

Schrer, F.M. & Ross, D. (1990), Industrial Market Structure and Economic Performance, Houghton Mifflin

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3. Resource markets

Demand and supply for resources

Wage determination

Rent, Interest and Profit

Learning actions:


(a) How do firms choose the quantities to employ labor, capital and natural resources

(b) How are the prices of wages, interest and natural resources determined in the competitive markets?

Readings:Hamermesh, D.S. (1993), Labor Demand, Princeton University Press

Kennan, J. (December 1995). The Elusive Effects of the Minimum Wage, Journal of Economic Literature, pp. 1949-1965

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4. Microeconomic issues and policies

Market failure and the government role

Business regulation – public interest and choice

Tax and subsidies – agriculture and support policies

Income inequality and poverty

Labor market – unionism, immigration and discrimination

Provision of health care

Learning actions:


(a) What influences have caused an increasing role of government intervention?

(b) How do we determine the volume of public goods that need to be produced?

(c) How are subsidies used to achieve efficiency in the face of external benefits?

Readings:Cornes, R. & Sandler, T. (1996), The Theory of Externalities, Public Goods and Club Goods, Cambridge University Press

Kauffman, B. (1993), Economics of Labor Markets, 4th edn., Dryden Press.

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5. National Income

Domestic product, national income and general price level

Economic growth and stability

Aggregate expenditure

Imports, exports, the government

The Multiplier

Aggregate demand and aggregate supply

Learning actions:


(a) Describe the equality between aggregate income, expenditure and product.

(b) Explain how is real GDP used to measure economic growth and discuss the limitations of this measure.

(c) Describe the effects of changes in aggregate supply and aggregate demand on economic growth, inflation and business cycles.

(d) What is meant by economic equilibrium and how is it achieved?

Readings:Kendrick, J. W. (1972), Economic Accounts and Their Uses, McGraw-HillBlinders, A. S. (2004), Macroeconomics: Principles & Policy; 2004 Update, South-Western College Pub.

6. Saving, Investment and Unemployment

Saving decision

Investment decision

Interest and Capital

Unemployment and Real GDP

Full employment

Learning actions:


(a) Explain what determines the demand and supply of labor.(b) What determines the employment, the real wage rate and the

potential GDP of an economy?(c) What causes unemployment in a situation of a full employment

economy?

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Readings:

Anderson, G.T. (June 1981), A New Approach to the Empirical Investigation of Investment Expenditures, Economic Journal, vol. 91, March.

Friedman, M. (June 1977), Nobel Lecture: Inflation and Unemployment, Journal of Political Economy, vol. 85, pp. 451-472

Feldstein, M. (1987), The Effects of Taxation on Capital Accumulation, University of Chicago Press.

Minford, A.P.L., et al. (1985), Unemployment: Causes and Cure, 2nd edn., Basil Blackwell, Oxford.

7. Fiscal Policy

The Government role

The Budget

Fiscal policy multipliers and the Price level

Fiscal policy and Aggregate Supply

Learning actions:


(a) Explain fiscal policy and how is it relevant to the economy?(b) What is the difference between a deficit and surplus budget?(c) Explain the difference between the demand-side and the supply-side

effects of a fiscal policy

Readings:Blinder, A. (1973), Fiscal Policy in Theory and Practice, General Learning Press

Hillier, B. (1991), The Macroeconomic Debate: Models of the Closed and Open Economy, Basil Blackwell, Oxford.

Blanchard, O.(2000), Macroeconomics 2nd edn., Prentice Hall

8. Money and Banking

Money and its use

Banking and financial system

Money creation

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Money, Real GDP and the Price level

Learning actions:


(a) What are the economic functions of banks and other financial institutions to an economy?

(b) How do banks create money?(c) Explain the significance of the quantity of money to an economy.

Readings:Ritter, L. & Silber, W. (1980). Money, 4th edn. Basic Books

Mishkin, F. (1998), The Economics of Money, Banking and Financial Markets, 5th edn., Harper Collins

9. Monetary Policy

Supply of money

Demand for money

Interest rate determination

Monetary policy and Aggregate Demand

Learning actions:


(a) Describe the tools used by the Central Bank to conduct monetary policy

(b) What is open market operations and how can it affect money supply?

(c) What determines the interest rate and how does the Central Bank influence the interest rate

(d) What are the determinants of the demand for money?

Readings:Gordon, R.J. (2000). Macroeconomics, Addison-Wesley, Reading, MA.

Walsh, C.E. (2003), Monetary Theory and Policy, 2nd edn., The MIT Press

10. Inflation

Inflation and the price level

Demand-pull inflation

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Cost-push inflation

Inflationary effects

Inflation and unemployment: The Phillips Curve

Inflation and Interest rates

Learning actions:


(a) What are the different sources of inflation?(b) What is the short-run and long-run relationship between inflation

and unemployment? (c) What is the short-run and long-run relationship between inflation

and interest rates?

Readings:Parkin, M. & Bade, R. (1988), Macroeconomics, 2nd edn., Philip Allan, Oxford

Dornbusch, R. & Fischer, S. (1987), Macroeconomics, 4th edn., McGraw Hill International

Gordon, R.J. (2003), Productivity Growth, Inflation, and Unemployment : The Collected Essays of Robert J. Gordon, Cambridge University Press

11. Long-run macroeconomic issues

Aggregate supply issues

Growth in the new economy

Public Debt – surplus and deficit

Macro policies – efficiency and burden

Learning actions:


(a) Explain the use of fiscal and monetary policies to shape economic growth in the long run.

(b) How does fiscal policy influence unemployment?(c) Why does recession occur when inflation is lowered?

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Readings:

Besenko, D., Dranove, D., Shanley, M. & Schaefer, S. (2003), Economics of Strategy, 3rd edn., Wiley Pub.

Shaw, G.K. (1984), Rational Expectations: An Elementary Exposition, Wheatsheaf, Brighton.

Begg, D.K.H. (1982), The Rational Expectations Revolution in Macroeconomics, Philip Allan, Oxford.

12. International economics

International trade

Exchange rates

The balance of payments

Trade surplus and deficit

Aid, growth and developing economies

Learning actions:


(a) Define comparative advantage and explain how a country gains from international trade.

(b) What are trade restrictions and how can it reduce our imports, exports and consumption possibilities?

(c) Why must we have trade restrictions?

Readings:

Husted, S. & Melvin, M. (2003), International Economics, 6th edn., Addison Wesley

Krugman, P.R. & Obstfeld, M. (2002), International Economics: Theory and Policy, 6th edn. Addison Wesley

Madura, J. (1989), International Financial Management, 2nd edn., West Publishing Co.

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eco501 business economics

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