Businesses are affected by developments in the world economy as never before. The effects of economic change are felt by firms as the plan for the short and long-term. But the best firms plan in increasingly sophisticated ways. This section looks at how some businesses make use of macro-economic data to optimise the effectiveness of their decision-making.
Effective analysis of economic developments means a three-stage process where the firm:
identifies the general impact of change on businesses
narrows the analysis to the firm's operating environment
only then, focuses in on the impact on the firm itself.
An identical macro-economic change can have radically different effects on different companies.
Let's illustrate this by referring to just one aspect of the macro-economy: economic growth itself:
The principal macro-economic indicator is to most analysts and planners the level of economic growth. Confidence among consumers and businesses tends to be stronger during periods of growth, of course. Company profits tend to grow more rapidly at these times; household incomes tend to rise, with resulting positive effects on consumer spending; and, because of the strength of corporate and consumer confidence, longer-term investment and expenditure plans tend to be brought forward or initiated.
But note the use of the phrase, 'tend to'...
The relationship between economic growth and consumer spending, or business profitability is not inevitable. Certain sectors of the economy are more closely linked to changes in economic growth than others. So-called 'pro-cyclical' firms and industries benefit from higher income elasticities of demand. The effect of this is that these firms and industries often experience faster growth in demand for their products and services, than occurs in the overall economy.
So, economic growth is one of the most important elements of macro-economic change. Can you identify some of the others?
۱۳۸۷ اردیبهشت ۲۱, شنبه
۱۳۸۷ اردیبهشت ۲۰, جمعه
Introduction to Economics
The Economic Problem
Opportunity Cost
Production Possibility Frontier
Opportunity Cost
Production Possibility Frontier
The Economic Problem
• Unlimited Wants
• Scarce Resources – Land, Labour, Capital
• Resource Use
• Choices
• Scarce Resources – Land, Labour, Capital
• Resource Use
• Choices
• What goods and services should an economy produce? – should the emphasis be on agriculture, manufacturing or services, should it be on sport and leisure or housing?
• How should goods and services be produced? – labour intensive, land intensive, capital intensive? Efficiency?
• Who should get the goods and services produced? – even distribution? more for the rich? for those who work hard?
• How should goods and services be produced? – labour intensive, land intensive, capital intensive? Efficiency?
• Who should get the goods and services produced? – even distribution? more for the rich? for those who work hard?
Opportunity Cost
• Definition – the cost expressed in terms of the next best alternative sacrificed
• Helps us view the true cost of decision making
• Implies valuing different choices
• Helps us view the true cost of decision making
• Implies valuing different choices
Production Possibility Frontiers
• Show the different combinations of goods and services that can be produced with a given amount of resources
• No ‘ideal’ point on the curve
• Any point inside the curve – suggests resources are not being utilised efficiently
• Any point outside the curve – not attainable with the current level of resources
• Useful to demonstrate economic growth and opportunity cost
• No ‘ideal’ point on the curve
• Any point inside the curve – suggests resources are not being utilised efficiently
• Any point outside the curve – not attainable with the current level of resources
• Useful to demonstrate economic growth and opportunity cost
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