Retention of Information

You are advised that you should retain this module booklet for future reference. You
may be asked to provide documentary evidence of modules taken and their content
by potential employers or in connection with an application to undertake further
study.

RATIONALE
This module examines the internal and external environments within which firms
must operate and helps managers to audit their business environment to establish a
strategic approach to their business activity.

AIMS
To introduce managers to the principles of economics as they apply to the business
environment. The aim is to enhance mangers’ understanding of, and ability to adapt
to, changes in the environments in which operate.

LEARNING OUTCOMES
Successful students will be able to:
1 Describe fundamental concepts in Economics, and understand the key elements of
the economic environment, micro, macro and international, within which businesses
operate.
2 Analyse and assess developments that shape the business environment and the
impact of these on managerial decision making.
3 Appreciate and understand the economics underlying the decisions that business
managers make and the effects of business decisions on a number of key
stakeholders.
4 Apply economic reasoning to a range of business decisions and contemporary
economic issues/problems.

CONTENT
 Business and the Economic Environment
 The Working of Competitive Markets - Demand, Supply and Market Equilibrium
 Consumer Behaviour, Estimating, Predicting and Stimulating Demand.
 The Supply Decision
 The Competitive Environment of the Firm
 The Growth of the firm
 Governing Business
 Domestic macroeconomics: Business Cycles, Growth, Inflation and Unemployment;
National income and Fiscal Policy; Money and Monetary Policy
 The International Economy: Trade; Balance of Payments and Exchange rates
TEACHING AND LEARNING METHODS

Lectures/seminars are the primary method of knowledge transfer. Lectures will

provide both an overview and analysis of the subject matter, as well as an
opportunity for guidance relating to reading and related course materials. Seminars
will enable students to review material covered in lectures, to engage in online
interactive activities to test their knowledge and understanding of the topics covered
in lectures, to develop their analytical skills through the application of economic
theory to actual economic problems, current issues and case studies, and to prepare
for assessment through study of relevant problems and questions.
The Web based materials will provide students with a range of “interactive” materials
designed to deepen their knowledge and understanding of key concepts and issues
in economics.

Students will have access to Blackboard Learn notes prepared in advance of the
module and detailed reading lists per topic.

ASSESSMENT AND FEEDBACK

100% Coursework
 The coursework will comprise two written assignments of up to 2000 words. These
assignments will integrate major themes of the module and assess the quantity and
quality of relevant knowledge; awareness of and ability to contribute to
contemporary economic policy debate; the application and development of
economic thought; and the quality of the argument pursued including understanding
of the literature, critical and balanced thinking and clarity of presentation.

 The assignments must be submitted electronically at the Blackboard

Feedback on assignments is provided by discussion in class and short comments on

each essay returned.

READING LIST

Useful textbooks which cover the same material

1) Core text:

Begg and Ward (2016) Economics for Business. 5th edition. McGraw-Hill: London.
(330/BEG)

2) Supplementary text:

The Core Team (2017) The Economy, Oxford University Press

Bade, R. and Parkin, M. (2011) Essential Foundations of Economics, London:

Pearson

1
Griffiths, A., Sloman, J. and Jones, E. (2011) Economics and the Business
Environment. 3rd edition. London: Prentice Hall

Sloman,J., Hinde, K. and Garratt D. (2010) Economics for Business. 5th ed.
London: Prentice Hall.

 Please note that if a more recent / later edition is used, chapter numbers may
have changed.
Electronic sources
The Economist (www.economist.com )
The European Economic Review (access via ABI Global database– UU Library)
The Financial Times (www.ft.com via UU Library)
Harvard Business Review (access via Business Source Premier database – UU
Library)
Journal of Common Market Studies (access via ABI Inform– UU Library)
Journal of International Business Studies (access via ABI-Global database via UU
Library)
OECD Economic Outlook http://www.oecd.org

These and other journals can be accessed at:

ABI-Global database; Business Source Premier and Emerald databases through the
UU Library.

Business Week (www.businessweek.com )

Financial Times (www.ft.com )
Economist (www.economist.com )
European Union http://www.europa.eu.int/index-en.htm
NAFTA Secretariat http://www.nafte-sec-alena.org/
World Trade Organisation http://www.wto.org
International Monetary Fund http://www.imf.org/
OECD http://www.oecd.org
World Bank http://www.worldbank.org
US Central Bank http://www.federalreserve.gov
European Central Bank http://www.ecb.int
Better Business Bureau http://www.bbb.org

The use of Wikipedia and other such dubious sources of information is completely
unacceptable!

SUMMARY DESCRIPTION

This module examines the internal and external environments within which firms
must operate and helps managers to audit their business environment so as to
establish a strategic approach to their business activity. It introduces managers to
the principles of economics as they apply to the business environment and aims to
enhance mangers’ understanding of, and ability to adapt to, changes in the
environments in which operate.

2
Coursework 1 (50% of Total Mark)
All questions must be answered.

(1) The makers of Porsche automobiles have adopted the following slogan: “Porsche: there is
no substitute.” If true, what does this tell you about the price elasticity of demand for
Porsches?(3%)

(2) Before the coronavirus outbreak the average high-street price of a travel-size hand
sanitiser was £0.99 but after the outbreak it went up to £2.49. Explain how demand, cost and
market concentration may explain the price change (3%)

(3.A) When bottlers increased the price of canned soda from vending machines by 10%,
sales dropped by 2.5%. Calculate the elasticity of demand for canned soda. (2%)
(3.B) Refer to part (a). The total revenue received by bottlers from their sales of canned
soda is equal to the price of canned soda times the number of cans sold (TR = P soda × Q
soda). In approximate percentage terms, what was the impact of the bottlers’ price change on
total revenue? (2%)

(4) The market for cod liver oil pills is characterized by the following demand and supply
equations: QD = 100 – 4P and QS = –20 + 2P, where P is the price per bottle and Q is the
quantity of bottles. (5%)
a. What is the equilibrium price and quantity?
b. If consumers want to purchase 60 more bottles at any given price, what is the new
equilibrium price and quantity?

(5) Suppose that last year the equilibrium price and the quantity of good X were $10 and 5
million pounds. Because of strong demand this year, the equilibrium price and the quantity of
good X are $12 and 7 million pounds, respectively. Assuming that the supply curve of good X
is linear, what happened to producer surplus in the market? (5%)
A Producer surplus increased from $12.5 million to $49 million.
B Producer surplus increased from $12.5 million to $24.5 million.
C Producer surplus increased from $3 million to $7 million.
D Producer surplus increased from $4.2 million to $5.6 million.

(6) Answer the following questions on price elasticity of demand. (5%)

a. The price elasticity of demand for football match tickets is –0.50. What happens to the
quantity of tickets sold if ticket prices rise by 5%?
b. The price elasticity of demand for fried chicken is –1.12. What happens to
expenditures on fried chicken following a price increase?
c. Suppose the demand for painkiller pills is given by QD = 1,000. What is the price
elasticity of demand at P = £100?
d. What will happen to the price elasticity of demand if there are more substitute goods
available?
e. Give two reasons to explain demand is less elastic with respect to price

(7). Suppose the demand for lobster decreased from a fall in consumer income, while the
supply of lobster increased from a record harvest. What effect would these supply and
demand changes have on the equilibrium price and quantity of lobsters? Show your answer
using a diagram
1. Both the equilibrium price and quantity would decrease

3
2. The equilibrium price would fall, but the effect on the equilibrium quantity could not be
predicted
3. The equilibrium price would fall and the equilibrium quantity would increase
4. The equilibrium quantity would increase, but the effect on price could not be predicted
(5%)

(8) Use the Figure below to answer the following questions. (5%)
a. What is the size of the subsidy?
b. What is the price consumers pay before and after the subsidy?
c. What is the price sellers receive before and after the subsidy?
d. What is the level of consumer surplus before and after the subsidy?
e. What is the level of producer surplus before and after the subsidy?
f. How much does the subsidy cost the government?
g. What is the deadweight loss of the subsidy?

(9) Use the Figure below to answer the following questions: (5%)

a. In the free market, what is the equilibrium price and quantity of ammunition?
b. If the government imposes a 200-box quota on ammunition, what is the new
equilibrium price and quantity?
c. Which letters represent the area of consumer surplus before the quota?
d. Which letters represent the area of consumer surplus after the quota?
e. Which letters represent the area of producer surplus before the quota?
f. Which letters represent the area of producer surplus after the quota?
g. Which letters represent the deadweight loss from the quota?

4
(10) The supply and demand for almonds are QD = 80 – 10P and QS = 10P, where P is price
per bag and Q measures hundreds of bags per day. (10%)
A. What is the equilibrium price and quantity?
B. Calculate consumer and producer surplus
C. Suppose the government imposes a price floor of $7 per bag. Is there a shortage or
surplus of almonds and, if so, what is the size?
D. Calculate consumer and producer surplus with the price floor.
E. What is the size of the deadweight loss?

(11) The graph below shows the market for a good where suppliers choose the quantity
supplied according to the price of the previous period, but consumers choose the quantity
bought according to the price of the current period. First, assume that demand is represented
by D1 and that the price-quantity adjustment process starts from point a. Sketch the
adjustment process and identify whether the market will converge to the long-run equilibrium
P*Q*. Second, assume that demand is represented by D2 and that the price-quantity
adjustment process starts from point a’. Sketch the adjustment process and identify whether
the market will converge to the long-run equilibrium P’Q’. What factor accounts for the
different outcomes under D1 and D2

5
(In solving this, it may be easier to work with two separate graphs) (10%)

(12) The graph below shows the market for wine in the ancient Roman province of Potium.
Equilibrium is at E at the cross of demand (AB) and supply (GH). To win the gratitude of the
mob governor Fidelius subsidises the sales of wine. As a result, the quantity produced and
sold increases from QE to QS. Consumers pay the price PC per unit while producers receive PS
per unit sold.

a. Identify the cost of the subsidy for the treasury

b. By using the concepts of producer and consumer surplus examine whether the subsidy
increases or decreases social welfare
(10%)

6
 Price

A
H

S
PS
E
PE
PC
C

G
B
O Quantity
QE QS

(13) Who is more likely to object to a proposed 1 percentage point increase in the city
sales tax—the owner of a local liquor store or the owner of a local video rental store? Why?
(5%)

(14) Consider a good A that can be produced domestically and by the rest of the world. In the
graph below S0SD and D0DD denote respectively the domestic supply and demand curves of the
good A. Point E denotes equilibrium under self – sufficiency, when the country is closed to
international trade., while PW shows the world price of A. Since the home country is a small
economy it faces a perfectly elastic supply of A in the world market (i.e., it can buy as much of
A as it likes at PW. International trade politics are such that the home country imposes a tariff on
imports of A, so that domestic consumers pay the price PT to buy good A

7
Identify the effects of the tariff on the welfare of domestic producers, consumers and the
government, as well as their net effect for the national economy (15%)

Price

D0 SD

Domestic price = World Price + Tariff

PT

World Price
PW

S0 DD
Quantity
O

(15) Emma sells hand-made shawls in a perfectly competitive market for £18 per shawl.
Emma’s fixed costs are £10, and she is capable of producing up to 6 shawls per week. (10%)

(a) Use that information to fill in the table below. (Hint: The variable cost of the first unit of
production equals its marginal cost and total variable cost is simply the sum of the marginal
costs up of the units of production up to any particular quantity of output)

Quantity Total Fixed Variable Total Profit= Marginal Marginal

Revenue Cost Cost Cost Revenue – Revenue Cost
Total Cost
0 0 10 --- ---
1 18 8
2 12
3 18
4 27
5 39
6 52

(b) What quantity of shawls should Emma produce to maximize her profit?

(c) At the profit-maximizing level of output, how do marginal revenue and marginal cost
compare?

(d) Suppose that Emma’s fixed cost suddenly falls to £7. How should Emma alter her
production to account for this sudden decrease in cost?

Submission date: Essays must be submitted electronically at the Blackboard by

8
23:59 on 2nd March 2021 (week 7).
Word Limit: 2000 words

Plagiarism
Plagiarism is the act of taking or copying someone else’s work, including another
student’s, and presenting it as if it were one’s own. The University’s policy is that
plagiarism, whether deliberate or unintentional, is a form of cheating and is
unacceptable.

Exceeding the word limit

Penalties for exceeding the word limit:
Up to 10%: no penalty
11-20%: 10% deduction
>20%: fail, with a mark of zero awarded

Feedback
Assignments will be returned within two weeks from the submission deadline and
model solutions will be uploaded on the Blackboard.

9
Coursework 2 (50% of Total Mark)
All questions must be answered

(1) When chef Paolo prices his speciality ‘pizza-n-all’ meal at £25, he sells 20 meals a day.
When he prices his pizza meal at £22, he sells 21 meals a day.

A. Suppose Paolo reduces his price from £25 to £22. Explain the impact of the price
reduction on the revenue he receives from the first 20 meals he sells. (3%)
B. Calculate the additional revenue generated from the additional meals he sells when he
lowers his price to £22. (3%)
C. Calculate the marginal revenue Paolo receives from the 21st meal. How does that
amount relate to the amounts you calculated in (a) and (b)? (3%)
D. Is Paolo’s decision to reduce his price from £25 to £22 a good one? Why or why not?
(3%)

(2) See the four statements below: (3%)

(i) Economies of scale lower total cost of production
(ii) Economies of scope give rise to natural monopolies
(iii) Diseconomies of scale justify the breakup of conglomerates
(iv) The benefits from vertical integration justify hostile takeovers.
A. All are correct
B. (ii) is correct
C. None is correct
D (iii) and (iv) are correct

(3) Livestock farmers frequently give antibiotics to their herds. The antibiotics create drug-
resistant bacteria, making them less effective. This harms future users of antibiotics who will
be using less-effective drugs
A. What is the nature of the market failure? (3%)
B. Explain whether livestock farmers are more likely to overuse or underuse antibiotics. (3%)

(4) Which of the following statements is TRUE? (3%)

I. In the face of a positive externality, a perfectly competitive market produces less than
the socially optimal quantity of output.
II. If vaccinations create an external marginal benefit, the marginal social benefit of
vaccinations will always exceed their private marginal benefit.
III. In unregulated markets, negative externalities create deadweight losses, but positive
externalities do not.
IV. In the face of a negative externality, a perfectly competitive market produces more
than the socially optimal quantity of output.
A. I, II and IV are correct
B. III only is correct
C. I and III are correct
D. I and IV are correct

(5) Fill the missing spaces in the sentence below: The fact that market outcomes fail to
achieve Pareto efficiency in the case of ______, implies that ______. (3%)
A. externality; government regulation is necessary
B. natural monopoly; private property rights are unethical
C. public goods; government action may improve the allocation of resources

10
 D. public goods; government must maximize income tax revenues

(6) Students at a nearby college often complain about assignments requiring group work.
The statement “I could have done a better job by myself” is often heard. Using the theory of
public goods explain whether the quality complaint heard by students makes sense (3%)

(7) Explain whether government spending on space exploration is an injection or a

withdrawal from the economy. Does your answer change if all increase in space exploration
pays for USA produced hardware? (3%)

(8) Using your own example explain how the macroeconomic objectives of a government
might conflict. (3%)

(9.A) How is the demand for money related to the velocity of circulation money? (3%)
(9.B) How is the velocity of circulation of money related to inflation? (3%)

(10.A) Recent measurements have shown a significant deterioration in the quality of the
Scottish seaside. Which of the following statements are compatible with this observation?
(3%)
A. The real value of GDP has increased
B. The real value of GDP remains the same
C. North Sea oil wells have dried up
D. The price of swimming costumes has gone down
(10.B) The impact of Covid-19 on happiness is negative because (3%)
A. it decreased economic activity
B. it coincided with Brexit
C. it forced social isolation
D. it obliged people to develop new Information Technology skills
(i) A is correct
(ii) A and B are correct
(iii) A and C are correct
(iv) All of the above are correct

11
(11) In the table below, C is consumption expenditure, I is investment, G is government
expenditure, and NX is net exports. All figures are in pounds. (3%)

The equilibrium level of real GDP is:

(A) £2200
(B) £2500
(C) £2400
(D) £2300

(12) When the consumption function lies above the 45-degree line, households (3%)
(a) spend on consumption a decreasing percentage of any increase in income.
(b) save all of any increase in income.
(c) are dissaving.
(d) spend on consumption an increasing percentage of any increase in income.

(13) In the diagram below, the multiplier is (3%)

(a) 1.5
(b) 2.0
(c) 3.0
(d) 2.5

(14) Assume the following economy: Autonomous Consumption = £3 mils; Marginal

Propensity to Consume = 0.8; Business Investment = 52; Government spending = £127 mils
income tax rate = 40%.
(a) Find the equilibrium size of income Y (10%)
(b) Identify whether the government runs a budget deficit or a budget surplus (4%)
12
(15) An increase in expected inflation will shift (3%)
a. both the short-run and the long-run Phillips curves to the right.
b. only the short-run Phillips curve to the right.
c. only the long-run Phillips curve to the right.
d. the short-run Phillips curve to the right and increase the slope of the long-run Phillips
curve.

(16) An increase in worker productivity brought about by the introduction of new

technology into the workplace will (3%)
a. shift the long-run Phillips curve to the left.
b. shift the long-run Phillips curve to the right.
c. decrease aggregate demand, since workers will lose their jobs.
d. cause the aggregate demand curve to become horizontal.

(17) Suppose that the government in the economy of the diagram below regards 9 percent
unemployment as unacceptable. If the government insists on reducing the unemployment rate
from 9 percent to 7 percent, regardless of the consequences, then (3%)
a. pressure will build in the economy to continuously reduce the rate of inflation.
b. the long-run Phillips curve becomes horizontal, freezing the rates of inflation and
unemployment.
c. the inflation rate will increase but the unemployment rate will stay at 7 percent.
d. in the long run the rate of unemployment remains unchanged, but inflation will likely
accelerate.

13
(18) Will the following lead to cost-push or demand-pull inflation? (5%)
(a) The discovery of a large and rich vein of gold in the banks of Lagan
(b) More militancy in wage demands by trades unions
(c) A fall in output as a result of a prolonged lockdown of business while the government
pays for salaries of furloughed workers
(d) A higher tax on microchips
(e) Increasing industrial concentration leading to oligopolistic industrial structures

(19). Explain why deficit finance of government expenditure may lead to ‘crowding out’
(5%)

(20) In the UK a Big Mac burger costs £3.19. In the highly attractive tourist island of
Dreamland it costs 18.98 local currency units (LCUs). The current actual exchange rate (bank
conversion price of the sterling pound) is £1 to 4 LCUs of Dreamland. If the Purchasing
Power Parity theory is correct in the long run, do you expect Dreamland’s LCU to appreciate
or depreciate vis-à-vis the sterling pound? (5%)

(21) Assume that when digging to plant flowers at the backyard of Jordanstown a very rich
vein of gold is discovered. If the government (a) monetises (b) sterilises this windfall how
will the sterling pound – EU euro exchange rate be affected? (5%)

Submission date: Essays must be submitted electronically at the Blackboard by

23:59 on 24th April 2021.
Word Limit: 2000 words

Plagiarism
Plagiarism is the act of taking or copying someone else’s work, including another
student’s, and presenting it as if it were one’s own. The University’s policy is that
plagiarism, whether deliberate or unintentional, is a form of cheating and is
unacceptable.

Exceeding the word limit

Penalties for exceeding the word limit:
Up to 10%: no penalty
11-20%: 10% deduction
>20%: fail, with a mark of zero awarded

Feedback
Feedback on the assignments will be provided in two ways. First, a summary feedback will
be provided in writing for each script. Second, the correct answers will be posted on the
Blackboard two weeks after submission, so that the students can self-assess and rework the
answers they got wrong. For the first Assignment oral feedback will be provided to the class
as a whole during a seminar, pointing out the main strengths and weaknesses found generally
in the scripts.

14