CPA Syllabus 2009: Economics and the Business Environment

Stage: Formation 1
Subject Title: Economics and the Business Environment
Examination Duration: 3 Hours

Aim
The aim of this subject is to ensure that students have a solid foundation in economics contributing to the development of a competent and well-
rounded member of the profession. This subject embraces a knowledge of the sources, interpretations and limitations of economic/business
statistics.

Economics and the Business Environment as an Integral Part of the Syllabus

Economics is an essential foundation subject for the professional accountant. This will equip students to develop their knowledge, understanding
and analysis of the economic environment and application of economic concepts. Knowledge gained from this subject will be particularly relevant
when studying Management Accounting, Managerial Finance, Strategic Performance Management, Strategic Corporate Finance, and Strategy,
Leadership and Knowledge Management.

Stage Subject Subject Subject Subject Subject Subject

P2 Strategic Strategic Advanced Strategy Leadership Audit Practice Advanced
Corporate Performance Corporate & Knowledge and Assurance Taxation
Finance Management Reporting Management Services
P1 Managerial Corporate Corporate Laws Auditing
Finance Reporting and Governance
F2 Management Financial Information Taxation
Accounting Accounting Systems
F1 Business Economics & Business Laws
Mathematics & The Business
Quantitative Methods Environment

The above table shows the linkages between Economics and the Business Environment and the subjects highlighted. The capabilities
developed will be built upon in the study of the subjects highlighted above.

Learning Outcomes • Discuss and analyse the factors

On successful completion of this subject
students should be able to:
• Explain economic concepts and
terms and their uses and
application.
• Explain the market environment
and income determination.
• Analyse and discuss the impact of
government policy and international
economic institutions on economic
issues.
• Apply micro economic techniques
to interpret and explain business
and consumer behaviour.
• Describe the modifying and
opportunistic aspect of the
particular market environment in
which a firm operates.
determining the contribution of Syllabus
various resources to the firm’s
revenue. 1: CONCEPTS CL*
• Explain the upper and lower limits
to income determination and the
distribution of economic rents. • Supply and demand. 2
• Explain the national economic • Determination of price. 2
parameters within which business • Equilibrium. 2
is conducted. • Market systems and the allocation 2
• Discuss the interrelationship of the of scarce resources.
various sectors within the economy. • Concepts of cost –opportunity, 2
• Describe the factors governing the fixed, variable, marginal, average.
operation of financial institutions • Time aspect –short run, long run. 2
and the significance of these for
• Aspect of size –economies and 2
economic activity.
diseconomies of scale, economies
• Discuss the global forces that of scope.
influence the open Irish economy.
• Implications of various elasticity 2
concepts.

*
CL: Competency Level
14

2: THE FIRM IN THE MARKET
PLACE
• The concept of profit maximisation.
• The conditions for long run profit
maximisation.
• The conditions for short run profit
maximisation.
• An understanding of the various
forms of market structures - Perfect
Competition, Monopolistic
(Imperfect) Competition, and
Monopoly.
• Long run price/output
determination for each of the
above forms of market structure.
• Economic efficiency in respect of
each of these forms of market
structure.
3: INFLUENCE OF COMPETITORS
ON BEHAVIOUR OF FIRMS
• Strategic Rivalry.
• Oligopoly and interdependence.
• Natural and strategic entry barriers.
• Kinked demand curves.
4: GROWTH STRATEGIES OF
FIRMS
• Horizontal growth.
• Vertical growth.
• Diversified growth.
• Growth by merger.
• Economies of scope.
• Profit maximisation objective when
management is separate from
ownership.
• Alternative theories of the firm.
• Principal –agent theory.
5: FACTOR MARKETS AND
INCOME DETERMINATION.
• Marginal productivity theory.
• Wage determination.
• Rent, interest and profit.
• Economic rents.
6: THE MACROECONOMIC
ENVIRONMENT.
• The circular flow of income.
• Potential and actual levels of
aggregate demand.
• National Income determination in
an open economy with
government.
• Interrelationship between National
CPA Syllabus 2009: Economics and the Business Environment
Income statistics - In answering all questions, students
GNP/GDP/National Income. are expected to convey,
• Accelerator and Multiplier. unambiguously, the required
2 information.
2
2 7: GOVERNMENT AND THE Examination Format
The examination is unseen, closed
MACROECONOMY.
2 book and 3 hours in duration.
• Objectives of national economic Question 1 is compulsory but there is
2
an element of choice within the
2 policy.
question in that students are required
• Interaction of objectives. 2 to answer 4 of the 5 sections. This
compulsory question is drawn from
• Policy instruments.
various parts of the syllabus in order
• Economic cycles. 2
to provide an indication of the
2 • Budget strategies. 2 students' overall understanding of the
• Fiscal stabilisers. 2 subject.
• Economic implications of direct and 2 Students are required to answer 3 of
2 indirect forms of taxation. the remaining 4 questions.
8: MONEY AND BANKING. Marks Allocation Marks:
Compulsory Question
• Development of the money 2
economy. (10 Marks are allocated 40
• Functions of money. 2 to each part of the question)
2
• Credit creation by the banking 2 Choice of 3 questions out of 4,
2 sector. (Each question allocated 20 marks) 60
2 • Money multiplier. 2 Total:100
2 • European Central Banking. 2
• Monetary policy/Exchange rate 2
Booklist
policy.
• Interest Rates and the 2 Core Texts
macroeconomy.
David Begg and Damian Ward / Economics for
2 Business / (McGraw-Hill 2004) / ISBN
2 0077104293.
9: GLOBAL ECONOMICS.
2 McDowell, Thom, Frank & Bernanke. / Principles
2 of Economics, (European Edition) / (McGraw-Hill
• Law of comparative advantage. 2 2006 Edition) / ISBN: 0077108310.
2 • Terms of trade. 2 Leddin & Walsh / The Macroeconomy of the
2 • Restrictions to free international 2 Eurozone /(Gill & Macmillan) / ISBN
trade. 9780717134922 (This book deals with the
applied side of government thinking).
• Fixed versus floating exchange 2
2 European and Monetary Union (a pamphlet
rates.
2 which may be purchased only from the CPA
• Balance of payments. 2 Institute).
• The global market environment. 2
• Economic benefits to a firm from a 2
global strategy. Manuals
• The pattern of international trade 2
2 flows. Supplementary Texts
2 AccountancyPlus
2 Assessment Strategy CPA students’ eBulletin
2
Examination Approach Useful Websites
Students have, through both narrative (as at date of publication)
and problem-based questions, the www.cpaireland.ie -
opportunity to demonstrate their Institute of Certified Public Accountants in Ireland
understanding and application of key www.centralbank.ie - Central Bank of Ireland
2 economic concepts, within both the www.irlgov.ie/finance - Department of Finance
2 domestic and global economic
www.esri.ie -
environments. Where appropriate, Economics and Social Research Institute
students are expected to evaluate
2 alternative possibilities and apply their www.ecb.int/ - European Central Bank
knowledge to specified or illustrative www.europa.eu/ - European Union
problems. www.neweconomics.org/gen/ - New Economics
Forum.
2
15