Fatih University Faculty of Economics

Department of Economics and Administrative Sciences Course Information for Business Economics

I. COURSE DESCRIPTION

Course Code: e-MAN 528. Course Name: Business Economics. The course is aimed at giving the students theoretical and practical knowledge of the applications of the basic principles of economics in business practice. It is based on the presumption that business economics is the application of economic principles and methodologies to the decision-making process within the firm or organization. It is presented as a normative discipline, seeking to provide rules that allow the firm to best pursues its objective function. The course is oriented to the following problems: basic microeconomics management tools, the basic principles of management of the firm, how to survive the competition, estimation of the firm’s position in the market, management and industrial organisation, management and business environment. The lectures not only introduce the key concepts and issues of the economics of firm management, they proceed as well to set out the proposed solutions in the context of policy making. AIMS 1. To provide an understanding of the main principles and theories relevant to the study of Business

Economics. 2. To apply the theories of managerial economics to real world business situations. Course Objectives: 1. To combine theoretical understanding of the academic literature with

discussion of the most acute practical problems in the fields of economic policy. 2. To develop in the students the mastery of alternative decision making on up-to-date

business issues using professional language and interpretation of the problems in the light of the modern economic theories.

3. To help the students to specialize in a given area of interest and to develop basic research techniques

LEARNING OUTCOMES On successful completion of the unit students should be able to:

1. Understand the main theories of the objectives of firms, the importance of these objectives for decision making and the factors likely to determine the objectives followed by different firms within the management industry. 2. Understand the importance of decisions related to price, output demand and cost for the achievement of objectives in management. 3. Critically evaluate theories of price and output determination when used in a managerial context. 4. Apply the concepts, principles and theories of demand and cost estimation and forecasting to problems encountered in management.

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TEACHING AND LEARNING STRATEGIES A weekly lecture/seminar in which the broad themes of the unit and key concepts and theories are introduced to the students. The course is fully computerized that means that all lectures are organized in the Computer laboratory and include various calculations during the lectures. The seminars are integrated with the lectures and are based on case studies with application of the basic econometric methods. Note that we are discussing managerial, not microeconomic or econometric problems. The microeconomic case studies and the econometric issues are presented just to facilitate better understanding of the managerial approaches. The seminars are based on case studies with application of the basic econometric methods. Note that we are discussing managerial, not microeconomic or econometric problems. The microeconomic case studies and the econometric issues are presented just to facilitate better understanding of the managerial approach. Requirements: The course is for senior students. They are required to complete one coursework assignments for correction and subsequent discussion during class seminars. There is a two-hour examination on the course by the end of the semester. Prerequisites: A good knowledge of mathematics is required, including basic econometrics, probability theory, regression analysis and linear programming. If the level of mathematics is not as required special classes are to be organized to discuss the basic mathematics necessary for the successful completion of this course. Teaching Method: This course has been prepared for the MBA program of distance education in Fatih University. For each semester it includes discussion topics divided into 3 modules. In the beginning of the semester the students choose which modules they prefer for discussion and the composition of the course is structured according to the students’ interests. Normally one topic takes three-four weeks including discussion of the corresponding research papers. All necessary information for the course – syllabus, tests, etc. is provided in the Teaching materials site of my Fatih homepage in Internet. All students may consult me by E-mail or appointment on the questions of concern. Remember that the best training you receive within the discussions during the lectures. Regular attendance thus is the best way to reach high results on the exam. Instructor: Prof. Dr. Alexi Danchev, Ph.D. Office: F-304, E-mail: adanchev@fatih.edu.tr Topics Covered: The lectures will introduce the key concepts and issues from a theoretical perspective, and then proceed to set out the proposed solutions in the context of policy making. No. Lecture MODULE ONE. FIRMS AND PRODUCTION 1 Lecture 1.Introduction

1. Organisation of the course.

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2. The economic problem. The ‘economic way of thinking’. Problems of information and knowledge faced by decision makers. 3. The basic problems we are going to discuss in our lessons. Varieties of

problems of information and knowledge. Factors that generate problems of information and knowledge.

Teaching materials: Peter Earl, and Tim Wakeley Business Economics: A Contemporary Approach, Chapter 1, pp. 1-16

2 Lecture 2. Markets and Models 1. Specialization, Scope for failures in economic co-ordination, Market-based co-ordination via the price mechanism 2. The art of applying a model. The mainstream view of economic systems. The heterodox view of economic systems and co-ordination 3. Markets as institutional structures. The firm as an answer to market failure. Teaching materials: Peter Earl, and Tim Wakeley Business Economics: A Contemporary Approach, Chapter 2, pp. 19-59

3 Lecture 3. What do entrepreneurs do? 1. Six perspectives on the economics of the entrepreneur. The Austrian perspective on the entrepreneur. 2. Schumpeter on the entrepreneur as innovator. The entrepreneur as a specialist in co-ordination. 3. Empirical analysis of the entrepreneur. A new departure – the entrepreneur as a constructor of connection Teaching materials: Peter Earl, and Tim Wakeley Business Economics: A Contemporary Approach, Chapter 3, pp. 61-88

4 Lecture 4. Who wants the product and in what quantity? 1. Mainstream consumer theory. 2. Contexts of choice 3. Behavioural/evolutionary consumer theory Fads, fashions and product lifecycles. Teaching materials: Peter Earl, and Tim Wakeley Business Economics: A Contemporary Approach, Chapter 4, pp. 91-135

5 Lecture 5. How shall the firm produce the product? 1. The mainstream theory of production. The short and long run theory of production. 2. The heterodox approach to production. Knowledge. Return to scale. Teaching materials: Peter Earl, and Tim Wakeley Business Economics: A Contemporary Approach, Chapter 5, pp. 139 - 180

6 Lecture 6. Where do costs come from and how do they behave? 1. The mainstream approach to the behaviour of costs. The short-run theory of costs. The long-run theory of costs. 2. Economies and Diseconomies of scale. Economies of scope 3. The heterodox approach to the behaviour of costs: Time and costs. The learning curve. X-inefficiency and costs Teaching materials: Peter Earl, and Tim Wakeley Business Economics: A Contemporary Approach, Chapter 6, pp. 181 - 218

7 Lecture 7. How can the firm set the ‘right’ price? 1. A general framework for thinking about pricing decisions. Underlying influences on the behaviour of the firm’s own costs, Underlying influences on the behaviour of competitors, Underlying influences on the behaviour of potential buyers, Underlying influences on the likelihood of new competitors emerging.

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Underlying influences on the behaviour of regulatory authorities. 2. How to define an industry for pricing purposes. The basic elements of the mainstream analysis of the firm’s pricing decision. Perfect competition. Pure monopoly. Imperfect competition. Price discrimination. Pricing under strategic interdependence. 3. The heterodox theory of pricing behaviour Teaching materials: Peter Earl, and Tim Wakeley Business Economics: A Contemporary Approach, Chapter 7, pp. 219 - 263

MODULE TWO. FIRMS AND MARKETS Lecture 8. How can the firm earn persistent above-normal profits?

1. The heterodox theory of the profit-seeking firm. 2. The evolution of industry structure Teaching materials: Peter Earl, and Tim Wakeley Business Economics: A Contemporary Approach, Chapter 8, pp. 265 - 289

9 Lecture 9. A business enterprise is born 1. Capitalism and risk. Financing the enterprise. Alternative financing strategies. Making a case to suppliers of finance. 2. To make or to buy? Alternative ways of organizing value chains. The case against vertical integration. The transaction cost analysis of vertical integration/internalization. Critique of the transaction cost perspective. 3. Recruiting and retaining staff. Why do firms often make it quite difficult to apply for the jobs they offer? Why don’t job contracts spell out more precisely the tasks they entail. Why do ‘leading-edge’ employers sometimes pay less than their rivals? Why do some ‘talking heads’ and bosses earn so much? The vulnerability of the new business and the importance of goodwill Teaching materials: Peter Earl, and Tim Wakeley Business Economics: A Contemporary Approach, Chapter 9, pp. 291 - 338

10 Lecture 10. How can the firm grow? 1. How rapidly will a firm grow? The motivation to grow. The relationship between growth and profitability. Growth via contractual linkages. 2. Growth via vertical linkages. Growth via diversification. Diversification and economies of scope. Synergy and hedging. Synergy links are subjective and in need of management. Can we make sense of conglomerate firms? Growth via mergers and takeovers. 3. Inter-firm linkages. Intra-firm linkages: economics of organizational structure. The organization problem. The U-form structure and its problems. The M-form structure Teaching materials: Peter Earl, and Tim Wakeley Business Economics: A Contemporary Approach, Chapter 10, pp. 341 - 386

11 Lecture 11. What can an established firm do when its sales volume stagnates or declines? 1. The role of slack in the competitive process. Innovation and the competitive process. Schumpeter and innovation. Innovation, technology and organization – some stylized facts. Routines and innovation. 2. Coping with a market in terminal decline. The nature of the decision problem in a terminal market 3. Exit barriers. Teaching materials: Peter Earl, and Tim Wakeley Business Economics: A Contemporary Approach, Chapter 11, pp. 387 - 414

12 Lecture 12. Fundamentals of macroeconomics

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1. What does GDP consist of? The output measure of GDP. The income measure of GDP. The expenditure measure of GDP. Adding government to the simple economy. Adding foreign trade to the closed economy. 2. The behaviour of GDP over time. The Keynesian cross model of the economy. A story about consumption expenditure. A story about investment expenditure. A story about government expenditure. A story about exports and imports. Putting the stories together to obtain a model of the economy. 3. The Aggregate Demand – Aggregate Supply model. The basis of government policy intervention. Teaching materials: Peter Earl, and Tim Wakeley Business Economics: A Contemporary Approach, Chapter 12, pp. 417 - 459

13 Lecture 13. What are the main sources of controversy in macroeconomics? 1. The mainstream perspective on macroeconomics. Mainstream analysis of unemployment. The mainstream perspective on output and inflation. A roadmap for a journey into heterodox macroeconomics. Flows of funds between sectors. Saving, investment and an ageing population. 2. Short-term fluctuations in aggregate demand. Demand is likely to be function of current income. The ‘feel good factor’. Wealth effects. Crows behavior. 3. Effective demand, unemployment and inflation. Expectations and employment. The importance of a fractional marginal propensity to spend from marginal income. The hetrodox perspective on unemployment. Heterodox perspectives on inflation. 4. Speculation and business cycles. Classical speculation versus movement trading. The propensity to speculate is not fixed, nor is the population of speculators. Increased risk-taking leads to financial fragility. Triggers for upswings and collapses. Limits to the fallout when a speculative bubble bursts Teaching materials: Peter Earl, and Tim Wakeley Business Economics: A Contemporary Approach, Chapter 13, pp. 462 – 504

14 Lecture 14. The international environment 1. What do we mean by the ‘balance of payments’? What are exchange rates and how are they determined? How can firms deal with exchange rate variability? Why do some firms become multinational enterprises? Why do firms charge different prices in different countries? What should a firm do when exchange rates change? What is the relationship between economic expansion and the structure of a country’s balance of payments? 2. Export-led growth. Export-led unemployment – ‘the Dutch disease’. Spiralling foreign debt 3. Can market forces stop growing foreign indebtedness from becoming a problem? Why do current account deficits persist even after currency depreciations? What is the orthodox medicine for countries facing a balance of payments crisis? Teaching materials: Peter Earl, and Tim Wakeley Business Economics: A Contemporary Approach, Chapter 14, pp. 507 - 547

IV. EXAM DATES, GRADING POLICY AND ATTENDANCE Exam Dates Final Exams: to be announced additionally Grading Policy

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The final results are composed in the following way: Kind of work % share

each Number of units

% share total

Non-exam works. 1. Homework: Analyzing professional text and case study. 5% 4 20% 2. Quiz: training for the exam. 5% 4 20% 3. Open book tests. 5% 2 10% Total non-exam results 50% 50% Exams. Mid-term exam 20% 1 20% Final exam 30% 1 30% Total exam results 50% 50% Total results 100% 100% This grading policy gives chance to all students to reach the highest results they wish, depending on their motivations. It is composed of the following kinds of work: 1. Homeworks. Every student has an individual homework. Every homework is to be presented according to the deadline, stapled and in plastic folder. Two kinds of homeworks are used: 1.1. Analysing professional text. It includes writing essay after reading several pages from your basic textbook. The essay should be no more than one page. It is aimed at reproducing the essay you are supposed to write on the exam. My very strong recommendation is to write with your own words, not to copy the text. This is your chance to train yourself for the exam. Normally I propose some structure of the essay in form of answering the questions formulated from the text in your basic manual. It helps you to prepare a good survey of a given economic problem with a training of correct citation. 1. 2. Analyzing case study. It includes a case in point analysis - answering the questions formulated in the case studies in your basic manual. Based on the discussions during the semester the students are to calculate several practical tasks. Note that for me the most important are not the correct calculations, but the analysis and the conclusions following from them. There is a detailed instruction in my homepage how to complete the calculation of this homework. It can be found in the corresponding section. Please, do not cite any text of this instruction in your homework. It cannot be a part of your essay. Be careful! This is individual, not collective homework. If I receive the same text in the homeworks (very easy to check in my computer) both homeworks will be eliminated without any right for repeating. During the semester you have to complete the following homeworks: Homeworks

1 Homework No. 1. Demand

2 Homework No. 2. Costs

3 Homework No. 3. Perfect competition and monopoly

4 Homework No. 4. Phillips curve

Students sending me their homeworks after the dates indicated above receive twice less points. 2. Quizzes. There are four quizzes aimed at preparing you better for the exams. Quiz # 1 - The basic economic problems Quiz # 2 - Demand and supply Quiz # 3 - Costs and costing Quiz # 4 – Perfect competition and monopoly Macroeconomics For details in preparing a good quiz presentation, please click here. 3. Open book tests. These tests are aimed at helping you to prepare yourself better for the exams. We reproduce the most difficult parts of the exams. Although you are free to use your notes and textbooks, it is recommended to try to answer the questions independently as it helps your training for the exams. 4. Exams. There are two exams: mid-term and final.

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Honor Code: All work done on the exams will be done on your own and pledged. Students may discuss homework concepts and approaches, but the work will be done by the individual. Group or copied solutions are not permitted. Homework is considered pledged simply by its receipt. Late Work and Examinations: Normally, homework is due one week from the assigned date, unless otherwise indicated or previous arrangements are made. Late homework will be accepted due to sickness only. Students who know that they are going to miss class should make arrangements in advance. Only selected homework problems may be graded from the set turned in. The others will be checked for completion. There are two exams: mid-term and final. The final exam includes the whole material discussed during the semester. Please be careful for the scores of your final grade. According to the University ruleS your grades are calculated by the following table: Grade Grade Quotient

AA 4,00 90 - 100

BA 3.5 85 - 89

BB 3 80 - 84

CB 2.5 75 - 79

CC 2 70 – 74

DC 1.5 65 – 69

DD 1 60 – 64

FD 0.5 50 – 59

FF 0 0-49

“Students are obliged to attend at least 70% of the theoretical courses and 80% of applied and laboratory studies. Students failing to comply with this provision shall not be allowed to take the final examination of the relevant course”. Undergraduate & Graduate Catalogue. pp. 34 – 35. Basic textbooks: Business Economics: A Contemporary Approach Author: Peter Earl, Tim Wakeley Publisher: McGraw-Hill Higher Education , 2004. ISBN10: 0077103920 Paperback Companion Site: http://highered.mcgraw-hill.com/sites/0077103920/information_center_view0/

Recommended readings Andrew Gillespie, (2013) Business Economics, (2nd Edition), Oxford University Press.

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Paul R. Ferguson, Glenys J. Ferguson and R. Rothschild, Business Economics. Business Economics: Decision-making and the Firm Author: David Brewster Publisher: Thomson Learning, 1997. ISBN10: 1861524250 (1 ed) Paperback Publisher's link | Google Books search | Worldcat library search Business Economics Author: Brian Atkinson, Robin Miller Publisher: Pearson Education, 1998. ISBN10: 020140351X Paperback Publisher's link | Google Books search | Worldcat library search Roger Perman, John Scouller (1999) Business Economics

Business Economics, 2/E Win Hornby , Deputy Head of Aberdeen Business School, Robert Gordon University Bob Gammie, Robert Gordon University Stuart Wall , Anglia Ruskin University

ISBN-10: 0273646036 ISBN-13: 9780273646037

Publisher: Financial Times Press Copyright: 2001 Format: Paper; 472 pp Published: 19 Apr 2001

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