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Business Economics: Course Outline (IDBEC001)

Business economics is the study of the financial issues and challenges faced by corporations operating in a specified marketplace or economy. This course will specifically focus macroeconomy and microeconomy.

Course Outline

Introduction to Microeconomics

Difference between microeconomics and macroeconomics

Supply & Demand

Basic economic problem – limitation of resources and infinite wants


possibility frontier – diagrammatical representation

The role of the market mechanism in the allocation of resources – supply & demand and the causes of movements and shifts of the curves

Elasticity and its application

PED – calculations, interpretation of figures, representation on a graph and changes over time

YED & XED – calculations and interpretation of figures

Incidence of taxation – a diagrammatic representation of how elasticity influences the effects of a tax

Supply decisions: costs of production

Costs and profit – as the terms are used in economics and calculations of costs

SRAC – the impact of diminishing returns on a firm’s short-run average costs (with examples)

LRAC – the impact of economics and diseconomies of scale on a firm’s long-run average costs (with examples)

Relationship between SRAC and LRAC – shown diagrammatically

Behaviour of firms (perfect competition, monopolistic competition, oligopoly and monopoly)

Market structure – the similarities and differences between the various market structures, diagrammatical representations of both the short-run and long-positions in the differing market structures, the implications in terms of a firm’s ability to earn normal versus abnormal profit and the impact upon social welfare

Price discrimination – the features needed in order for price discrimination to be possible and the impact upon social welfare

Market failure and government intervention

Externalities – the influence of social costs/ benefits differing from private costs/benefits and the implications for market-based resource allocation

Merit goods, demerit goods and public goods – key characteristics, implications in terms of being underprovided/overprovided and solutions in terms of provision

Scope of Macroeconomics:

Macroeconomic Objectives – growth; employment; inflation; balance of payments

Circular Flow – in a two sector economy - in a three sector economy - in a four sector economy

Equilibrium in the Circular Flow – National Income Identity

Measuring a nation’s income – GDP and its components. Real and Nominal GDP; GDP Deflator

GDP as a measure of well-being

Course Outline

National Income and Demand Management policy:

Background to Keynesian School;

AS-AD Model

Develop 45 degree line: using the income & expenditure approach.

Multiplier by graph and numeric example

Inflationary and Deflationary Gap

Fiscal Policy supported by Monetary Policy

Money and Inflation:

Money – what is it and its functions

Role of central bank

Commercial Banks; deposits; credit creation; money multiplier

Classical view; money supply, demand and equilibrium

Classical dichotomy and Money Neutrality

Quantity theory of money

Liquidity Preference:

Supply of Money – its determinants

Demand for money – transactions, precautionary and speculative link inverse with interest rates

Equilibrium and Interest Rate adjustments

Interest rate and AD

Phillips Curve Short Run and Long Run:

Background to Phillips Curve trade off

Break up of Phillips relationship

Friedman and the vertical Phillips Curve

Expectations and short run Phillips curves


Accelerationist Theory

International Trade:

Absolute and Comparative Advantage

Barriers to Trade: Tariffs; Quotas; Technical and Administrative barriers etc.

Arguments in favour of trade restrictions: Nurture infant industries; Soften the fall of declining industries; Protect from low wage competition; Protect from dumping; Reduce the influence of trade on consumer tastes; Promote self-sufficiency; Non economic arguments.

Trading Blocs: Free trade area; Customs Unions; Common Markets

Balance of Payments & Exchange Rates

Describe the component parts of the Balance of Payments – Current Account; Capital Account & Financial Account

Significance of Balance of Trade & Balance on Current Account

Exchange rates movements in a free market –floating exchange rate.

Floating exchange rates and the balance of payments

Fixed exchange rates – methods available to maintain a fixed exchange rate

Fixed and floating exchange rates – advantages and disadvantages of both

Review in preparation for final examination

Final Examination

Recommended Books