Economics for Managers / Edition 3

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Overview

For students in the one-semester MBA Managerial Economics course. This book is also suitable for all readers interested in the field of managerial economics.

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Economics for Managers presents the fundamental ideas of microeconomics and macroeconomics and integrates them from a managerial decision-making perspective in a framework that can be used in a single-semester course.

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To be competitive in today’s business environment, managers must understand how economic forces affect their business and the factors that must be considered when making business decisions.¿ This is the only book that provides business students and MBAs with a thorough and applied understanding of both micro- and macroeconomic concepts in a way non-economics majors can understand.

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The third edition retains all the same core concepts and straightforward material on micro- and macroeconomics while incorporating new case material and real-world examples that relate to today’s managerial student.

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Product Details

  • ISBN-13: 9780132773706
  • Publisher: Prentice Hall
  • Publication date: 6/26/2013
  • Edition description: New Edition
  • Edition number: 3
  • Pages: 552
  • Sales rank: 622,795
  • Product dimensions: 8.70 (w) x 11.00 (h) x 0.90 (d)

Read an Excerpt

The goal of Economics for Managers is to present the fundamental ideas of microeconomics and macroeconomics and then integrate them from a managerial decision-making perspective in a framework that can be used in a single-semester course. Managers need to understand the insights of both microeconomics and macroeconomics because firms are influenced by forces in each of these areas. The approach in this text will help answer the first question many Master of Business Administration (MBA) and Executive MBA (EMBA) students ask when confronted with a required economics course in their programs: Why should managers study economics? Most of these students are not economists and do not want to become members of that profession. These students have often taken one or two introductory economics courses, which they typically found to be full of abstract models and theories that did not seem to relate to their jobs or their lives.

Economics professors may be responsible for some of these impressions because they often fail to recognize that business students are different from themselves. While economics professors may enjoy the logical, deductive approach to model building and hypothesis testing that characterizes their subject, business students typically want to know the relevance and applicability of basic economic concepts and how these concepts can be used to analyze and explain events in the business environment. Unfortunately, economics is often taught from an abstract theoretical perspective, so that current and future managers never learn how the subject can be used for decision making. Surveys at Georgia State University indicate that students are extremelydissatisfied when their MBA economics courses are taught from a traditional theoretical and mathematical perspective, but they respond favorably to courses that include numerous applications and illustrations combined with a basic level of theory.

Most micro/managerial economics and intermediate macroeconomics texts are written for economics students who will spend an entire semester using each text. The level of detail and style of writing in these texts is not appropriate for business students or for the time frame of a single-semester course. However, business students need more than a principles of economics treatment of these topics because they have often been exposed to that level of material already. Economics for Managers presents economic theory that goes beyond principles of economics, but is not as detailed or theoretical as a standard intermediate economics text, given the coverage of both micro- and macroeconomics and the additional applications and examples included in this text. Intended Audience

This text is designed to teach economics for business decision making to students in MBA and EMBA programs. It includes fundamental microeconomic and macroeconomic topics which can be covered in a single quarter or semester or which can be combined with other readers and case studies for an academic year course. The book is purposely titled Economics for Managers and not Managerial Economics to emphasize that this is not another applied microeconomics text with heavy emphasis on linear programming, multiple regression analysis, and other quantitative tools. This text is written for business students, most of whom will not take another course in economics, but who will work in firms and industries that are influenced by the economic forces discussed in the text.

A course using this text would ideally require principles of microeconomics and macroeconomics as prerequisites. However, the text is structured so that it can be used without these prerequisites. Coverage of the material in this text in one semester does require a substantial degree of motivation and maturity on the part of the students. However, the style of writing and coverage of topics in Economics for Managers will facilitate this process and are intended to generate student interest in these issues that lasts well beyond the end of the course.

Economics for Managers can be used with other industry case study books, such as The Structure of American Industry by Walter Adams and James Brock. These books present extensive discussions of industry details from an economic perspective. Although they focus primarily on microeconomic and managerial topics, these texts can be used with Economics for Managers to integrate influences from the larger macroeconomic environment with the microeconomic analysis of different firms and industries. Organization of the Text

The text is divided into three parts. Part I, Microeconomic Analysis, focuses on how individual consumers and businesses interact with each other in a market economy. Part II, Macroeconomic Analysis, looks at the aggregate behavior of different sectors of the economy to determine how changes in behavior in each of these sectors influence the overall level of economic activity. And finally, Part III, Integration of the Frameworks, draws linkages between Parts I and II.

Although many of the micro- and macroeconomic topics are treated similarly in other textbooks, this text emphasizes the connections between the frame-works, particularly in the first and last chapters. Changes in macroeconomic variables, such as interest rates, exchange rates, and the overall level of income, usually impact a firm through microeconomic variables, such as consumer income, the price of the inputs of production, and the sales revenue the firm receives. Managers must be able to analyze factors relating to both market competition and changes in the overall economic environment so they can develop the best competitive strategies for their firms.

To cover all this material in one text, much of the detail and some topics found in other micro and macro texts have been omitted, most of which are not directly relevant for MBA students. There is no calculus in this text, only basic algebra and graphs. Algebraic examples are kept to a minimum and used only after the basic concepts are presented intuitively with examples. Statistical and econometric techniques are covered, particularly for demand estimation, at a very basic level, while references are provided to the standard sources on these topics. The text places greater emphasis than other texts on how managers use nonstatistical strategies to make decisions about the demand for their products and draws linkages between the statistical and nonstatistical approaches.

Economics for Managers includes little formal analysis of input or resource markets, either from the viewpoint of standard marginal productivity theory or from the literature on the economics of organization, ownership and control, and human resource management. The latter are interesting topics that are covered in other texts with a focus quite different from this one. The macroeconomics portion of this text omits many of the details of alternative macro theories discussed elsewhere. Students are given the basic tools that will help them understand macroeconomics as presented in business sources, such as the Wall Street Journal, that emphasize how the national government and the Federal Reserve manage the economy to promote full employment, a stable price level, and economic growth. Chapter-by-Chapter Breakdown

Chapter 1 presents the first news article case which illustrates both micro- and macroeconomic issues. This article helps establish the framework that will link Parts I and II of the text. The basic interaction between consumers and producers is then presented in Chapter 2 on demand and supply, which clearly illustrates the variables influencing both consumer and producer behavior.

Chapter 3 first discusses the various demand elasticities in conceptual terms and illustrates the relationships among price elasticity, changes in prices, and the impact on revenue. It then presents empirical estimates of different elasticities drawn from both economics and marketing studies and discusses how price and advertising elasticities influence a firm's competitive strategies. The standard economic consumer choice model is included as an appendix to Chapter 3.

Chapter 4 on understanding consumer demand and behavior includes a simple Excel example illustrating the use of regression analysis to estimate a consumer demand function. It then discusses an empirical study of automobile demand to show the additional complexities of real-world demand estimation. The chapter also includes a description of nonstatistical marketing approaches that managers employ to determine how consumer preferences and other economic variables influence the demand for their products. The two approaches are related by the fact that many statistical analyses are based on consumer and other market research data that managers currently use.

The following chapters focus on the issues of production and cost in the short run (Chapter 5) and long run (Chapter 6). These chapters emphasize the relationship between the underlying technology and the resulting costs of production. They also show how real-world production and cost functions may differ from the theoretical examples. The isoquant model is included in an appendix to Chapter 6.

The four basic market structure models—perfect competition, monopolistic competition, oligopoly, and monopoly—are presented in Chapters 7, 8, and 9. The discussion of the perfectly competitive model in Chapter 7 focuses on various agricultural products. However, the chapter illustrates how many of these industries are attempting to gain some degree of market power through product differentiation. This theme of the sources and uses of market power is carried through Chapter 8 on monopoly and monopolistic competition, which also includes a brief discussion of the effect of antitrust policy on competitive strategies. Chapter 9 presents insights on the interdependent strategic behavior of a few basic oligopoly models and then illustrates these principles with descriptions and examples of real-world oligopolistic behavior. An appendix to Chapter 9 (located on the book's companion Web site) shows both print and electronic data sources that can be used for analyzing the behavior of different firms and industries.

Chapter 10 focuses on the managerial use of markup pricing and price discrimination strategies to increase profits. This chapter draws on all of the F previous microeconomic analysis and includes numerous "new economy" examples. It also discusses reasons why managers may not change prices immediately in response to changing demand and cost conditions.

Part II, Macroeconomic Analysis, begins with the circular flow model in Chapter 11 to define the framework for macroeconomics in both conceptual and empirical terms. The appendix to Chapter 11 (located on the book's companion Web site) summarizes the data sources for macroeconomic analysis. Chapter 12 discusses spending on real goods and services and the IS curve, while Chapter 13 discusses the money market and the LM curve. Chapter 14 then presents a discussion of the complete aggregate macroeconomic model, including both IS-LM analysis and aggregate demand (AD) and supply (AS). The goal of these chapters is to describe the basic elements of the model without a clutter of theoretical details so that students can see the relationships between the market for real goods and services and the money market in both the fixed- price (IS-LM) and flexible-price (AD AS) frameworks. The text relates the aggregate macroeconomic model to the economic indicators used to measure the relevant policy variables and to the policy discussions in the Wall Street Journal. After reading these chapters, students will have a good understanding of how changes in different economic variables impact the macroeconomic policy goals of full employment, a stable price level, and sustained economic growth.

Although the impact of the foreign sector on the domestic economy has already been integrated throughout Part 2 of the text, Chapter 15 adds a discussion of international and balance of payments issues. This chapter describes the relationship between flows of imports and exports and international financial flows, presents the balance of payments (BP) accounting system used to measure all international transactions, and develops a simple model of foreign exchange markets that is used to show the impact of both flexible and fixed exchange rate systems. It also includes more complex, realworld examples of how these balance of payments issues influence the decisions of foreign and domestic policy makers and the competitive strategies of managers and firms as they respond to changes in the international economic environment.

In Part III, Integration of the Frameworks, we return to the issues first discussed in Chapter 1, the relationship between microeconomic and macroeconomic influences on managerial decision making. Chapter 16 presents two cases illustrating these influences. The first case returns to the discussion of foreign investment in Brazil that opened Chapter 1. We show how changes in the Brazil's macroeconomic environment between 2000 and 2002 influenced firms' competitive strategies. Students are in a much better position to analyze these issues now, having covered all of the micro and macro analysis in the earlier chapters. The second case examines the fast-food industry and McDonald's Corporation, which underwent substantial changes in this same period. While macroeconomic factors influenced the fast-food industry, the case focuses more on the microeconomic factors of changes in consumer demand, pricing and cost, and the market environment.

The text ends by emphasizing its major theme: Changes in the macro environment affect individual firms and industries through the microeconomic factors of demand, production, cost, and profitability. Firms can either try to adapt to these changes or undertake policies to try to modify the environment itself. Unique Features of the Text Chapter Opening Cases for Analysis

Each chapter of Economics for Managers begins with a Case for Analysis section, which examines an article drawn from the current news media that illustrates the issues in the chapter. Thus, students begin the study of each chapter with a concrete, real-world example that highlights relevant economic issues, which are then explained with the appropriate economic theory. For example, Chapter 2 begins with a Wall Street Journal article on the copper industry in order to illustrate forces on both the demand and the supply sides of the market that influence the price of copper and have caused that price to change over time. This example leads directly to a discussion of demand and supply functions and curves, the concept of equilibrium price and quantity, and changes in those equilibriums. Within this discussion, numerous real-world examples are included to illustrate demand and supply shifters. The chapter concludes by reviewing how formal demand and supply analysis relates to the introductory news article. Students thus go from concrete examples to the relevant economic theory and then back to real-world examples. Managerial Decision-Making Perspective

Economics for Managers is developed from a firm and industry decision-making perspective. Thus, the demand and elasticity chapters focus on the implications of elasticity for pricing policies, not on abstract models of consumer behavior. To illustrate the basic models of production and cost, the text focuses on examples of cost-cutting and productivity-improving strategies that firms actually use. It discusses the concept of input substitution intuitively with examples, but places the formal isoquant model in an appendix to Chapter 6. It then compares and contrasts the various models of market behavior, incorporating discussions and examples of the measurement and use of market power, most of which are drawn from the current news media and the industrial organization literature.

Throughout the chapters you'll find Managerial Rule of Thumb features, which are shortcuts for using specific concepts and brief descriptions of important issues for managers. For example, Chapter 3 contains several quick approaches for determining price and income elasticities of demand. Chapter 4 includes some key points for managers to consider when using different approaches to understanding consumer behavior.

Macroeconomics presents a particular challenge for managers because the subject matter is traditionally presented from the viewpoint of the decision makers, either the Federal Reserve or the U.S. Congress and presidential administration. Although Economics for Managers covers the models that include this policy-making perspective, it also illustrates how the actions of these policy makers influence the decisions managers make in various firms and industries. This emphasis is important because most students taking an MBA economics course will never work or make policy decisions for the Federal Reserve or the U.S. government, but they are or will be employed by firms that are affected by these decisions and policies. End-of-Chapter Exercises

As you'll see, some of the end-of-chapter exercises are straightforward calculation problems that ask students to compute demand-supply equilibriums, price elasticities, and profit-maximizing levels of output, for example. However, many exercises are broader analyses of cases and examples drawn from the news media. These exercises have a managerial perspective similar to the examples in the text. The goal is to make students realize that managerial decisions usually involve far more analysis than the calculation of a specific number or an "optimal" mathematical result. One of the exercises at the end of each chapter is related to the Case for Analysis discussed at the beginning of that chapter. Connection to the Internet

Economics for Managers is connected to the resources available on the Internet through a companion Web site available at www.prenhall.com/farnham. Students can use this site to link to relevant data sources for analyzing particular firms and industries, such as the Web sites and search engines presented in the appendix to Chapter 9. The Web site also includes links with the data and analysis available from the Web pages of agencies and organizations such as the Bureau of Economic Analysis, the Federal Reserve System, and the National Bureau of Economic Research, the macro data sources discussed in the appendix to Chapter 11.

On the Web site, you'll also find updates on the articles referenced in the text, particularly the articles reprinted at the beginning of each chapter. This allows students to follow events influencing these firms and industries subsequent to the publication of the original articles.

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Table of Contents

PART 1. MICROECONOMIC ANALYSIS
1. Managers and Economics
2. Demand, Supply, and Equilibrium Prices
3. Demand Elasticities
4. Techniques for Understanding Consumer Demand and Behavior
5. Production and Cost Analysis in the Short Run
6. Production and Cost Analysis in the Long Run
7. Market Structure: Perfect Competition
8. Market Structure: Monopoly and Monopolistic Competition
9. Market Structure: Oligopoly
10. Pricing Strategies for the Firm

PART 2. MACROECONOMIC ANALYSIS
11. Measuring Macroeconomic Activity
12. Spending by Individuals, Firms, and Governments on Real Goods and Services 13. The Role of Money in the Macro Economy
14. The Aggregate Model of the Macro Economy
15. International and Balance of Payments Issues in the Macro Economy

PART 3. INTEGRATION OF THE FRAMEWORKS
16. Combining Micro and Macro Analysis for Managerial Decision Making

SOLUTIONS TO EVEN-NUMBERED PROBLEMS
GLOSSARY
INDEX

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