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Management and

Business in Context 2
seminar 1.

The External Context


of Business and
Management
Resources

 Textbook
 Acemoglu, D., Laibson, D., List, J.A.
(2016): Economics (Pearson)
 Moodle
 Check out regularly the Thinking problems
Assessment

 50% exam
 50% coursework
 Midterm test 85%
 Continuous in class assessment 15%
5 short quizes on moodle 10%
8:00 am Monday of weeks #3, 4, 6, 10, 12
1 short test in class in week 12 5%
 Exam regulation
 Absence regulation
Angwin, D., Cummings, S. & Smith, C. (2011) The Strategy Pathfinder: Core Concepts and Live Cases. 2nd ed. Wiley pg 8.
M&B in Context

 Individual decisions DMS, MBC1


 The firm
 The micro environment MBC1
 Markets, competitors
 The meso environment
 Industries, sectors
 The macro environment MBC2
 The national and the global economy
The Macro-economic Context

 The study of a national economy


 As opposed to studying isolated markets
 „Aggregate” perspective
 Deliberate simplification, loss of details
 Special terminology
 The macro-economic perspective is less
intuitive
Follow the material from the beginning!
Macro-economic Questions

 Why the living standard is so different


across the border?
 Why is it changing differently?
 Poverty, inequality, development

 Why does the performance of an


economy change over time?
 National output, employment, int’l trade
 Recessions vs. booms
Macro-economic Questions

 Why do prices, interest rates, values of


the national currencies (not) change (so
rapidly)?
 Should countries go alone or join groups?
 Free trade vs. protectionism
 European Union, Eurozone

 What could be done about these issues?


 By whom?
 Decisions of economic policy
Macroeconomics = ?

 = crises management
 Birth of the field: Great Depression, 1929-33
 The word „macroeconomics” first appears in scholarly
literature in the 1940s
 Ongoing debate
 Little consensus on basics
 Schools of thought
 Political standpoints
Current Global Issues

 Demographic crises, migration


 Sustainable growth
 Climate change
 Sovereign debt crisis
 Financial crises
 QE, bubbles, deflation, bitcoin
 Currency crises, „currency war”
Approach To Economic Issues

 Positive economics
 Description, analyses, & search for academic
(objective, neutral) explanations
 „What are the likely consequences of this?”
 “If this happens then that would follow.”

 Normative economics
 Provide recommendations for policy making
 “Whatshould be done in this case?”
 Answer depends on subjective goals, values

 Social science vs. Engineering


12

The Economic Way of Thinking


 J. M. Keynes (1936)
„The Theory of Economics does not
furnish a body of settled conclusions
immediately applicable to policy. It is a
method rather than a doctrine, an
apparatus of the mind, a technique of
thinking which helps its possessor to
draw correct conclusions.”
THE MESO-ENVIRONMENT
The Micro Environment

 Markets, equilibrium, efficiency


 Conditions?
 Perfect competition = ?

 The equilibrium of a free and


competitive market represents an
efficient allocation of resources
 Efficient:
 No waste of society’s resources
 Market size is maximal
Efficiency In The Economy

 National output
 Total output of an economy
 Total output of all firms and markets

 Potential output
 National output that could be produced if all markets in
the economy achieved an efficient allocation of
resources
Markets in Practice

 Real world markets are rarely free and


competitive
 Market failures
 Market power, imperfect competition
 Externalities
 Public goods, common resources
 Asymmetric information

 Actual output ≠ Potential output


 A serious macroeconomic issue
In Practice

 Competitiveness of markets is important


 Micro perspective
 Profitability,
business success
 Sources of market power

 Macro perspective
 Volume of trade, output produced
 Performance of the national economy
In Practice

 Competitiveness is a matter of degree


 Porter’s 5 force analysis
 Useful tool of analysing the threats to profitability
 The force of competition in a particular market
or industry
 M. E. Porter (1980): Competitive Strategy
Porter’s 5 Forces Framework

 Apply economic principles to answer the


basic question in case of all 5 forces:
„Is this force sufficiently strong to
erode the profitability of a typical firm
in this industry?”
5-Forces Framework
Readings On 5 Forces Analysis

 Johnson, G. et al. (2014):


Exploring Strategy Text & Cases. 10th ed.
Pearson.
 Ch.2.3.1. p.41-49.
 Besanko, D., et al. (2010):
Economics of Strategy
 Ch.12, Appendix
 B-P: Baye, M., J.T. Prince (2013): Managerial
Economics and Business Strategy.
 Ch.1 (p.8-11)
Key Ideas

 Meso environment
 Macro environment
 Positive vs. normative approach
 Efficiency
 Potential output
 Market power
 5 force framework
 The basic question: …
 The 5 forces are: …
To do for next seminar

 Read ch.19.1, 19.2 of Acemoglu et al.


(2016)
 Consider the thinking problems on
moodle

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