Economics for Business

Transcription

1 QCF Syllabus Economics for Business Unit Title Economics for Business Unit Reference Number A/502/4798 Guided Learning Hours 160 Level 6 Number of Credits 25 Unit purpose and aim(s): This unit aims to give learners a sound understanding of: the finite nature of economic resources market equilibrium, supply and demand analysis, price determination elasticity of demand and supply short and long run costs, economies and diseconomies of scale how different market structures affect business how the banking and finance sector affects business Learning Outcome 1 The learner will: Understand the nature of economic resources and that their finite supply creates the need for business organisations to make choices. 1.1 Explain the difference between microeconomics and macroeconomics. 1.2 Explain the problems of scarcity and opportunity cost and how these concepts are related, using numerical examples and/or a production possibility frontier. 1.3 Compare, using real world examples, the relative merits of alternative economic arrangements for overcoming the problem of scarcity in society Explain what is meant by microeconomics and macroeconomics Provide examples to illustrate the differences between microeconomics and macroeconomics Define and explain the nature of factors of production Explain the basic economic problem of scarcity Explain the concept of opportunity cost and use a production possibility frontier to explain scarcity, resource choices and opportunity cost Explain what is meant by free market, command and mixed economies Explain how different economic systems decide what to produce, how to produce it and who to produce it for.

2 Learning Outcome 2 The learner will: Understand the concept of market equilibrium and be able to use supply and demand analysis to examine how price is established within a market. 2.1 Explain, in words and with diagrams, the concept of equilibrium in a supply and demand model, and illustrate the effects of changes in market conditions on equilibrium price and quantity. 2.2 Examine, using appropriate supply and demand diagrams, the effects of taxes and subsidies and the effects of price ceilings and price floors on market price and quantity traded. 2.3 Identify examples of positive and negative externalities and, using supply and demand analysis, demonstrate the effects of these externalities on the market equilibrium Explain with the use of diagrams, the difference between individual and market demand Explain the reasons for movements along, or shifts in, supply and demand curves Draw supply and demand curves based on data and solve these for the equilibrium price and quantity Analyse how equilibrium price and quantity are established and affected by changes in supply and demand Draw a supply and demand diagram and use this to illustrate and comment upon the effect of a specific tax, a government subsidy and the imposition of maximum/minimum prices Identify the burden/benefit of taxation/subsidies on consumers and producers Explain the meaning of positive and negative externalities and provide supporting examples to show the distinction between private and social costs and benefits Using supply and demand analysis show how positive/negative externalities impact upon resource allocation Illustrate, using supply and demand curves, how alternative policies, such as the use of taxation, can be used to correct market failure caused by externalities. Learning Outcome 3 The learner will: Understand the concepts of elasticity of demand and supply and their application within the business decisionmaking process. 3.1 Define, measure and interpret: price elasticity of demand; price elasticity of supply; income elasticity of demand, and cross price elasticity of demand. 3.2 Explain, using diagrams and different concepts of demand elasticities, what is meant by each of the following: normal goods; inferior goods; luxury goods; complements, and substitutes. 3.3 Examine the use of the concepts of elasticity by firms to analyse and evaluate market changes State the formula for, and explain what is meant by: price elasticity of demand; income elasticity of demand; cross price elasticity of supply, and price elasticity of supply Explain the factors which affect the numerical values of each of these elasticities Solve simple numerical elasticity problems, using quantitative information Explain the relationship between concepts of demand elasticities and the following goods: normal goods; inferior goods; luxury goods; complementary goods, and substitute goods Identify real world examples of normal goods; inferior goods; luxury goods; complementary goods and substitute goods Identify the implications of price elasticity of demand, price elasticity of supply, income elasticity of demand and cross price elasticity of demand, for the behaviour of firms Evaluate the usefulness of the concepts of elasticity as appropriate decision-making tools for a business.

3 Learning Outcome 4 The learner will: Understand the economic theory of costs, the distinction between short-run and long-run costs, economies and diseconomies of scale, and their application to business. 4.1 Use formulae, diagrams and examples to explain the differences between fixed cost, variable cost, marginal cost, average cost and total cost. 4.2 Explain, using examples, the determination of short-run and long-run cost curves and describe the relationship between short and long run average cost curves. 4.3 Distinguish between economies and diseconomies of scale and discuss their relevance to the business decision-making process, including the potential implications for businesses arising from changes in size Explain, using numerical examples and diagrams, the difference between fixed cost, variable cost, marginal cost, average cost and total cost Explain, using an appropriate diagram, the relationship between average and marginal cost Draw cost curve diagrams based on numerical cost data Solve numerical and/or diagrammatic problems using cost data Explain the relationship between diminishing marginal returns and the shape of the short-run average cost curve Explain the relationship between increasing returns to scale, decreasing returns to scale and the shape of the long-run average cost curve Explain what is meant by economies and diseconomies of scale and relate these concepts to the long-run average cost curve Identify the potential benefits to the firm associated with economies of scale Examine why firms might wish to increase in size Explain why small firms might still play an important role in an economy. Learning Outcome 5 The learner will: Understand the nature and characteristics of different market structures and how these structures affect business conduct and performance. 5.1 Explain how different market structures determine the marginal conditions for the profit-maximising output decisions of a firm. 5.2 Identify the distinctive features of firms operating in perfect competition, monopolistic competition, oligopoly and monopoly and discuss the implications of these differences regarding pricing and output decisions of firms in the short run and long run Illustrate, using diagrams, and numerical examples, the relationship between total revenue, average revenue, and marginal revenue, and between marginal revenue and the elasticity of demand for a profit maximising firm Explain the marginal conditions for the profit-maximising output decision of the firm Explain, using words, diagrams and numerical examples, how a firm reaches its profit maximising output with reference to marginal cost and marginal revenue Solve diagrammatic and numerical problems of profit maximisation Explain, using diagrams, how a firm chooses whether or not to stay in operation or leave the industry in the short run and long run Illustrate the distinctive features associated with a firm operating in a perfectly competitive market and, using numerical and/or diagrammatic examples, show how the firm establishes its profit maximising equilibrium price and output Identify the distinctive features of a monopoly and explain, using diagrams and/or numerical examples, the firm s profit maximising equilibrium output and price Describe the key characteristics of a firm operating in a monopolistically competitive market and illustrate the profit maximising price and output position in the short run and the long run Outline the general characteristics of an oligopoly industry and explain, using diagrams, the profit-maximising price and output position.

4 5.3 Explain how different types of market structure will affect business decision-making and create different policy alternatives within an organisation Compare the welfare implications of perfect competition and monopoly with reference to equilibrium price and output, deadweight welfare loss, allocative efficiency, productive efficiency and X-inefficiency Outline policy alternatives aimed at reducing the social cost of monopoly Explain the meaning of collusion and the factors that aid or hamper the ability of firms to collude in the context of oligopoly Compare the price, output and welfare implications of oligopoly models relative to the models of monopoly, monopolistic competition and perfect competition, and examine the implications of these findings for policy makers and business decisionmaking. Learning Outcome 6 The learner will: Understand the role and importance of the banking and finance sector to the successful operation of a business. 6.1 Outline the respective roles of the central bank and the commercial banking system and how they relate to the business environment. 6.2 Explain the concepts of inflation and deflation and their impact on business behaviour. 6.3 Explain the meaning and operation of monetary policy and how the use of different instruments such as changes in interest rates and changes in the money supply might influence business decision-making Explain the role and functions of money in a modern economy Explain the role and functions of a central bank and its importance in relation to business operations Examine the key characteristics of the commercial banks and their importance to business Explain the relationship between the banking system, the credit creation process and the control of the money supply Define the concepts of inflation and deflation Explain the causes of inflation and deflation Illustrate and explain inflationary and deflationary gaps, using Keynesian cross diagrams and/or aggregate demand (AD) and aggregate supply (AS) diagrams Explain why both inflation and deflation can cause problems for a business Explain the meaning and operation of monetary policy and how the different instruments of monetary control, such as the use of interest rate changes, operate Identify the factors that determine the effectiveness of monetary policy Explain the likely impact of different monetary policies on businesses and the implications of these policies for business decision-making.

5 Learning Outcome 7 The learner will: Understand the impact of international free trade and the use of alternative exchange rate regimes upon business performance. 7.1 Explain how the various measures of the external accounts are constructed and examine the different factors that determine them. 7.2 Identify the advantages and disadvantages of free trade and explain why governments may decide to impose restrictions on free trade. 7.3 Describe the concepts of exchange rates and terms of trade and compare the effects of alternative exchange rate regimes on business Explain the separate elements of each part of the balance of payments account and distinguish between visible/invisible items; between balance of trade and invisible balance and between current and capital account Examine the different factors which determine the state (surplus/deficit) of these accounts Explain the difference between absolute and comparative advantage, the gains from specialisation and the benefits of free trade Illustrate, using numerical examples, how gains from specialisation arise and identify the gains from trade, using data on opportunity cost for two countries Identify the measures that can be employed by governments to restrict or promote trade and their impact on business performance in developed and developing countries Examine the costs and benefits associated with the use of measures to restrict free trade Explain the difference between key terms used in the analysis of exchange rates: devaluation; depreciation; revaluation; appreciation Describe the ways in which government manipulation of exchange rates may affect business performance. Assessment: Assessment method: written examination (unless otherwise stated). Written examinations are of three hours duration. All learning outcomes will be assessed. Recommended Reading: Economic Principles and their Application to Business ABE Study Manual. Please refer to the Tuition Resources section of the Members Area of the ABE website ( for further recommended reading.