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Sold bought service client : you buy some services / exception : doctor : patient

ANGLAIS DES AFFAIRES When the supply is dicrease, the price grow up
CHAPTER 1 : INTRODUCTION TO ECONOMICS :
1. Economy, economics, economic, economical : defintions 2. ECONOMICS :
2. Economy The economics can be define by the study of the economy and the factors affecting
3. Economics the economy. It deals with the production, distribution and use of goods and
3.1 The scarcity principle services.
3.2 The cost-benefit principle Economics is the science about the use of goods and services
3.3 Microeconomics and macroeconomics Study : how the ressources can be distributed in the best way
The main issue of economics : unlimited wants vs. limited ressources
1.Economy, economics, economic, economical : defintions
Economical : not using a lot of fuel, money (ne pas utiliser bcp de a. The scarcity principle :
carburant ou argent, donc de manière économique) People have WANT and NEED  « want » can be define by the desire of someone
e.g : There is increasing demand for cars that are more economical on whereas the « need » can be define by the fact that something is essential for the
fuel person
e.g : What’s the most economical way of heating this building ? Today our wants exceed the needs available to satisfy them.
Principles of scarcity(=penurie/manque) : not enough of something demand
Economic : related to trade, industry and money (en situation de crise dicreased, the price increase
économique) Scarcity is why the economics exist
e.g : The country is in a very poor economic state Ex : scarcity of ressources
e.g : We sould not expand our business in the current (actuel) economic Scarcity= you can’t have what you want, you can’t have everything so you have to
stade make a choice. Indeed we have to make hard choices about what to produce and
(Actualy : réellement) consume.
Economie  Anglais : economy and economics (different) We often have to listen what the government say.

1. ECONOMY : Ex : Some parents have a young child and he needs to go to school. How do you
choose the school ?
Economie can have two differents meanings : economy or economics Maybe because of the number of pupile in a class / on the price. The parents if they
 Economy come from the ancient greek oikonomia -> « household choose the class with there are less pupiles it’s because they made sacrifice or
management » because they have the money for. Indeed the class with less people will be more
 And from the archaic english : economy -> The management of household expensive than the other one. Because of scarcity, you have to make trade-off
and especially expenses. (Trade off : compromis) or concessions.
 Today : The system by which the goods and services are produced, sold,
and bought in a country or region.

Produced  goods customer : you buy some goods


b. The cost benefit principle Mesurer les coûts et les avantages de la réduction de la taille de la classe :
It is the idea that an individual (or a firm or a society) should take an action if, and - 2 enseignants au lieu de 1 - 2 salles de classe plus petits au lieu d'un grand
only if the extra benefits from taking that action are at least as great as the extra single .
costs La réduction de la taille des classes = coût supplémentaire de 1000 € par
étudiant
Cost/benefit (=advantage) whereas in french benefit is profit
If you want to create a class of 20 and 40 you have to : Réduire le sens de la taille des classes que si les étudiants paient ( au
 create two different and smaller classrooms instead of a single big one. moins ) un supplément de 1 € , 000. classes pour 40 étudiants : salles de 40
 pay another professor instead of one places ou des salles de 20 places ?
 Benetif :
It’s for what the parents have to pay more when they choose the class of 20 - Infividualized attention
You could reduce a classroom only if each students are happy to pay an extra of - Interaction
1,000€. Because it’s a fact reducing the class siza= additional cost of € 1,000 per - Participation
student.  Cost :
- 2 teachers
Desadvantage : - 2 smaller classrooms
The best class in terms of economic it’s not the same in term of education
La réduction de la taille des classes = coût supplémentaire de 1000 € par
It’s about number or quality of life.
étudiant
an individual (or a firm or a society) should take an action if, and only if,
the extra benefits from taking that action are at least as great as the extra Réduire le sens de la taille des classes que si les étudiants paient (au
costs. moins) un supplément de 1 € , 000. Classes pour 40 étudiants : salles de
40 places ou des salles de 20 places ? Etes-vous prêt à payer ?
Example: Classes for 40 students: 40-seat rooms or 20-seat rooms?
The university loose money. So no.
Measure the costs and benefits of reducing the class size: - 2 teachers
If you are economist use to spend : 40
instead of 1 - 2 smaller classrooms instead of a single big one.
If you are a student o teacher, the solution is : 20
Reducing the class size = additional cost of € 1,000 per student
Reducing the class size make sense only if students pay (at least) an extra
€1, 000. c. Microeconomics and macroeconomics
Are you ready to pay? Microeconomics : How the economic decisions individual people and
individual businesses affect the larger economic system. Focusses an
un individu (ou une entreprise ou d' une société ) devraient prendre une individual people and individual buiness in other to understand there economic
action si , et seulement si , les avantages supplémentaires de prendre cette decision ans how there are decision in France the larger economics sister. Specific
action sont au moins aussi grande que les coûts supplémentaires . Exemple: markets and industries
Classes pour 40 étudiants : salles de sièges de 40 ou salles de 20 places ?
Macroeconomics : study the entier economics, focused on large decision,
Classes pour 40 étudiants : salles de sièges de 40 ou salles de 20 places ? large-scale decisions and issues at a national or global scale (echelle).
Focusses on large-scale (échelle) decisions and issues. b. Antonius of Florence
He is an italian friar (1389-1459)
Ex : Deals Inflation, unemployment, interest rates, gross domestic product (GDP), He was counsted of social developement and economic developement.
Learn economic growth, monetary/ fiscal policy, controle the damage made by the It was the duty of the state to intervene in market (mercantile affairs) for the
recession common good and to help the poor and the needy.
The market is composed of goods and services The economic should be manage by the state
Brexit is an exemple of a country which decided to leave an organisation
Globalisation : ONUUN 2. Mercantilism :
GAFA : google apple facebook amazone, they are extremly powerful and have an The mercrantilism is the dominant theory in modernized parts of Europe between
important place in the globalisation and so in the world across the different country the 16th and 18th century
The gouvernement has to regulate the economi
The gouvernemnt sould a regulate the economi in oder to crise national welf
CHAPTER 2 : HISTORY OF ECONOMICS : (=richesse)/ power
In other world, mercantilims is a form of economic nationalition for the purpose a
1. In the Middle Ages bulding, rich and powerfull state.
a. Thomas Aquinas Power equate wild gold and silvers, is a question of money.
He is an italian economic writer (1225-1274)
Was influenced by a grand philosophor Aristotte’s but there are point of view are  Alliance between government and business
slidhtly (=different). Aris : traders (= personnes dans les commerce) a brake the  Increase national wealth and state power :
wold of justice. Tu achètes un article pour 2 euros, tu dois le revendre au même  Stimulate production of domestic goods
prix d’après lui. Pas de profit. You brake the wold of justice.  Limit domestic consumption because they wanted to export
On the contry i can have belives that a traders merit a return that will cover not  Put tariffs on imports
just the price of this item but also the paiement for his on liber. SI on achète 2  Export>imports ; they try to create a favourable balance of trade
euros on revend plus cher (point de vue de Aquinas) because they wanted to keep the money in the country
It was a moral obligation of traders to sell goods at a just price. The goal of mercantilism : strengthen(renforcer) the economy and
The just price had to equate the costs of production, including the maintenance of weaken(zffaiblir) foreign adversaries -> imperialism and many European wars.
a worker and his family. Price controls and other forms of market regulation were
necessary to counterbalance the selfish excesses. Jean-Baptiste Colbert, minister of finance under Louis XIV (1661-1683)
Aquinas learned the law of justice. He believed in fair price. FAIR TRADE just price Every aspect of economic production was put under government control :
Ex : if you buy an apple computer, what is the mark up ? 30% is for the name and -companies owned by the Crown (creation of companies trade to deal with
not the product. colonies)
The price is decided by the market, and the company have to follow that. -shipbuilders were subsidised by the state
When youp pay your phone, you pay for the labour and the raw materials too -ports were improved and canals built because exchanges by ship were very
What is the objective of a company ? It’s to make a profit. Moral obligation to sold important.
the object with his just price -French industry and commerce became matters of official concern
If the price is too high, people will steal and it will be an anarchy. There is no
anarchy if the price is fair or not it’s for that you need market regulation
-industries that were threatened by foreign competition were defended by the The competition prevents the economy from flying apart = « the hidden hand
state (=main invisible) of the market »
The problem is that costs are superior than the benefits.
So the mecrantilism began to disappear in the late 18th century. Example of « the hidden hand of the market » :
The productions methods and quality methods are define by the state. A bookseller sells books at an exhorbitant price
 Competitors will build bookshops
Ex : tarrifs onimported cloth + subsidised immigration of Dutch and Flemish  The bookseller has to lower the price or he will be driven out of business by
weavers (=tisserants) and merchants  save the French cloth industry form the competion. Buyers, who are aware of all the outlets, will avoid the higher priced
competition of Dutch producers. shop and buy their books elsewhere.
-companies owned by the Crown
-shipbuilders were subsidised by the state Conclusion : A large number of sellers, the consumers’ knowledge of prices and
-ports were improved and canals built
shops limit the ability of any single supplier to influence price
-French industry and commerce became matters of official concern
-industries that were threatened by foreign competition were defended by
Classical economy and laissez-faire :
the state
- economic individualism and poursuit of self-interest
- market self-regulation is desirable and beneficial
(Protectionnism : it’s the fact that a country decide to protect his economy)
- the role of the state should be minimal
Colbert introduced a kind of protectionnism, but it failed because it was too
expensive
b. David Ricardo
He is an English classical economist (1772-1823), and he defend the theory of value
What is the industrial revolution ? Creation and innovation of machine. Ex : Lyon : and the theory of comparative advantage :
Jacquard : automatic machinery . There are a lot of innovation that they are from
Lyon like the first videogames, mongolfiere
 The labour theory of value :
After the period of « mercantilism » began the period of « Laissez faire »  The value of an item could be measured objectively by the average
number of labour hours necessary to produce it.
3. Classical Economy : Example : A horse card : 20 ounces of gold vs. a pair of shoes=2 ounces
 What made the horse cart 10 times as valuable as the shoes ? Labour
a. Adam SMITH theory of value : the horse cart took 10 times as much labour to produce as the
Adam Smith is a Scottish economist ( 1723-1790). shoes.
He wrote « The Wealth of Nations » in 1776 and it’s considered as the centerpiece
for the classical school.  The theory of comparative advantage :
Smith conceptualised the capitalism : each individual is free to poursue their self  The countries should specialise in producing the goods and services
interest. taht they can produce at a lower oppotunity cost (=most cheaply) and
He was in favour of entrepreneurship and free market. import those taht are more expensive to produce.
The market self-regulates : prices are determined by supply and the demand Example of comparative advantage : UK and India produce textile and books.
under competitive conditions.
5. The Chicago School of Economics
The governments should not interfere with markets because markets self-
regulate.
There are two famous economists who were in The Chicago School of Economics.

a. Milton Friedman
He is an American economist (1912-2006), he recieved the Nobel Prize in
c. Karl Marx Economics in 1976. He rejected the use of fiscal policy and thought the
He is a socialist economist (1818-1883), he influenced communist leaders (Vladimir government’s role in the economy should be restricted. The government should
Lenin, Joseph Stalin) keep the money supply fairly stable, expanding it slightly each year to allow for the
The socialism is the reaction to the miserable living and working conditions of the natural growth of the economy // the Quantity Theorie of Money : a direct
working class. relationship between the quantity of money in an economy and the level of prices
Capital (1876) : owners of the factories= « capitalists » forced to exploit the of goods and services sold.
workers who worked in their factories to make profits.
From the Golden Age to the Great Depression : b. Gary Becker
 Beginning of the Industrial Revolution : a surplus of agricultural workers He is an american economist (1930-2014), he recieved the Nobel Prize in Economics
seeking employment in factories  low wages (1992).
 Industry developed full employmenthigher wages He research on discrimination in markets : free market in favour of equality (racial
 Machinery developed fewer workers were needed wages lowered and gender)
 Workers could not afford buying the goods they
 firms refusing to hire the best-qualified workers because of their race or gender
producedoverproduction prices dropped and unemployment
put themselves at a competitive disadvantage.
increased.
He research on family and household behaviour : families are economic units
 family members tend to act on the basis of cost-benefit analyses.
4. John Maynard Keynes and Keynesianism
He is a British economist (1883-1946). His theory dominated the world of
economics from the end of WW2 to the 1970s. CHAPTER 3 : THE MACROECONOMIC ENVIRONMENT :
A managed from capitalism : the government had a role to play in the economy.
A boost spending/stimulate demand economic recovery : 1. Macroeconomics
- Cut taxes 2. Economic Growth
- Make public investments 3. Inflation
- Low interest rates 4. Unemployment
Keynesianism is a sharp contrast to laissez-faire and classical economics : it strongly
believes in government intervention.
 People want to use resources as fully as possible and they hope
that the national out put (=production) will grow.
But not easy  periods of stagnation and high unemployment.
The great depression of the 1930s, the early 1980s, the early 1990s, the - potential growth= how much the economy could grow
late 2000
 Actual growth= fluctuating
 Economy is cyclical  Business cycle.
 Periods of growth alternate with periods of stagnation or depression

1. Macroeconomic
 business cycle= 4 Phases
 Aggregate (=the entire) economy
 Vs microéconomic
 Interdependent : microéconomie et macroéconomie
Ex : the impact of inflation (macroeconomics) :
- on the ability of a business to borrow money
- on consumer-spending plans  impact on the firm’s output

 Phenomena examined by macroeconomics :


- National income & gross national product = economic growth
- Inflation
- Unemployment
- Macroeconomy=the policies adopted by governments.

 Macroeconomy  impact on firms and consumers regarding production


and consumption

- Recovery : output starts to increase after a period of recession


 The role of government= crucial influence on the demand and the
- Boom : rapid economic growth
supply-side through fiscal and monetary policy
- Slowdown and downturn :
- Recession
2. Economic growth
3. Inflation
 Growth = objective of governments and businesses.

 Economic growth= annual increases in gross domestic product  A general and persistant rise in prices throughout the economy over a
 increases on productivity period of time.
productivity=quantity and value
 Rise aggregate demand  rise in prices.
 Actual growth vs. potential growth
- actual growth =how much the economy is actually growing  General rise in prices inflation
= the wages/prices inflationnary spiral= disastrous for economy.
 High aggregate demand + high inflation  domestic goods become
uncompetitive with foreign goods.  Rising prices  fall in sales and turnover  rise in unemployment

 RISE vs. RAISE 4. Unemployment


 As a number (e.g In April 2013, the number of unemployment people in
 RISE = AUGMENTER/AUGMENTATION France reached a record high of 3.22 million) or as a percentage (e.g The
UK unemployment rate has fallen to 4.9 %)
- a verb (augmenter) or a noun (une augmentation)
- RISE (rose, risen) = intransitive verb.  Measuring unemployment : who should be included in the statistics ?
Prices are rising. Prices rose last year.  The population of working age can be classified into 3 categories :
A rise in prices. - Employed : people who are working full-time or part-time
- Unemployed : people of working age who do not have a paying job
 RAISE (elever) but are actively seeking a job.
- a transitive verb. - Out of the labour force : people who are not employed and not
The government is raising taxes. The government raised taxes. actively seeking a job (e.g full-time students, homemakers,
retirees)
 The unemployment rate = the percentage of the labour force that is
 Causes of inflation ? unemployed.
 2 categories of explanations :  Low unemployment rate  better wages and working conditions.
 Economists distinguish between three types of unemployment :
- Inflation from the demand-side = demand pull inflation : - Frictionnal unemployment : the period of time between jobs when a
 Excess demand from customers  producers raise their prices to worker is searching for, or transitioning from one job to another
achieve bigger profit margins.  Frictionnal unemployment = short-term unemployment.
 Excessive encouraged by tax cuts or mow interest rates. - Structural unemployment = long-term and chronic unemployment.
 Excessive demande  increase in import  further price rises. factors of structural unemployment :
- a lack of skills
- Inflation from supply-side = cost-push inflation : - language barriers
 Firms increase prices because of a rise in production costs. - disrimination
- economic changes may also be responsible for structural
unemployment (e.g decline in European textile and coal-mining
Production costs rise because of :
industries).
- Component costs (increase in raw materials)
- Cyclical unemployment in associated with periods of recession
- Wage increases
= a decline in the demand for goods and services  producers reduce
production and lay off workers
 Demand pull inflation and cost-push inflation = tightly linked :
Rises in wages push up prices  prices push up wages  wagesfurther
push up prices and so on.
CHAPTER 4 : RECESSIONS
1.1. Definition in the United States
1. Definition  For the National Bureau of Economic Research (NBER)
1.1 Definition in the USA A recession = « a significant decline in economic activity spread across the
1.2 Defintion in Europe economy, lasting more than a few months, normally visible in real Gross
2. Causes Domestic Product GDP, real income, employment, industrial production
3. Types of recession and wholesale-retail sales »
3.1 V-shaped
3.2 U-shaped 1.2. Definition in Europe
3.3 W.shaped  A recession = a decline in GDP for 2 or more consecutive quarters
3.4 L-shaped  Recession is a significant decline in :
4. Fighting recessions - industrial production
4.1 Monetary policy - employment
4.2 Fiscal policy - real income
4.2.1 Increasing government spending - trade
4.2.2 Decreasing government revenue

Role of macroeconomists : try prevent/shorten recessions 2.CAUSES


 A fall in aggregate demand > recession :
1. Definition o Interest rates ↗
o Inflation ↘
 Economies can go through periods of unusual strength (boom) or o Real wages ↘
weakness(=recession) = the business cycle. o a fall in consumer confidence
 Period of rapid economic growths = o a credit crunch  a decline in bank lending  lower investment
 vs. periods of slowdowns = recessions (<downturn<recession) o a rise in exchange rate
 The business cycle = the alternating between expansion and recession
 Recesssions begin with shocks (e.g natural disasters, terrorist attacks, the 2. Recessions in the UK:
introduction of bad government policies, sudden spikes in the cost  Different causes
important natural ressources 1974-75: The Organizations of Petroleum Exporting Countries(OPEC) tripled the
 Recession = decline in the output of goods and services price of oil.
+ a low level of consumer spending 2008-09: credit crunch and contraction of bank lending to firms and households.
=People spend less  unsold stocks  manufacturers cut down on  Different effects
production growth becomes negative Recession Growth rate Inflation rate Unemployment
+ a drop in the Stock Exchange 1974-75 -0.74% 20.70% 2.60%
+ a fall in the housing market 2008-09 -2% 2.35% 6.80%
+ an increase of unemployment
= output falls  firms need fewer workers  massive layoffs Keynes - The first economist who tried to explaind the causes of recession before
the 2nd world war.
 Tough(difficult) times: people start saving money  Example(US): - recession between January and July 1980
 Times become tougher when everyone saves money instead of spending - Period of growth in the 1st 3 months of 1981
it - Recession from July 1981 to November 1982
 Recessions(spending money) - A period of growth for the rest of the decade
4) L-shaped recession
3. Types of recession  A quick fall ( sharp decline)
Economists distinguish between 4 types of recession, 4 various recession shapes:  The economy does not manage to recover
 V-shaped recession (without recovery)
 U-shaped recession  Usually very long.
 W-shaped recession = the worst scenario for economists
 L-shaped recession  Japan – 1990

4. Fighting recession
1) V-shaped recession Governments respond to recession by using expansionary macroeconomic
 A sharp decline policies:
 But they quickly find a bottom  Monetary (monetarists)
 Immediately followed by an equally sharp recovery  Fiscal (keynesians)
= the best scenario for economists To increase aggregate demand during a recession;
 They are very short
 One recession in 1953, 1991 both 4.1 Monetary policy
lasted for 8 month  Control of the money supply and interest rates.
 Money supply(masse monetaire)- Total stock of money circulating in a
2) U-shaped recession economy, including the physical cash + the money on checking and
 A decline savings accounts.
 Followed by an extended period of  Defined by the central bank: (of UE, Frankfurt, Germany)
time(stagnation) before recovery (of US, FARC)
 U are longer than V (of UK, the central bank of England)
 In the US 1971-1978 4.2 Fiscal policy
 Reffers to decisions made by governments spending and taxation
3) W-shaped recession  A government can choose to cut or reduce taxes, or increase taxes.
 Sharp decline  Taxation = lowering taxes
 Before recovery (sharp recovery) Decrease of government revenue.
 The economy falls back into recession  Government spending = buying more goods
(Again decline) Increase of government spending.
 Before fully recovering.  Government budget deficit = tax revenues – spending;
= a “down up down up” pattern = “double-dip  Large government deficits > instability and inflation.( The Stability and
recessions” , because the economy drops twice Growth Pact(SGP) in Europe.
before a full recovery.  This is why in Europe try to limit the government deficits.
4.2.1 Increasing government spending  1957: Treaty of Rome ( Belgium, France, Germany, Italy,
 Unemployed people + accumulation of unsold goods. Luxembourg, The Netherlands)
 Government spending to buy up a lot of the unsold products  European Economic Community (EEC)
 Demand  The objective was the closer union between the members, but
 Businesses hire the unemployed the members did not have a real monetary union in mind. Just in
 Paid again economy level, not in monetary.
 Spend more money
 Demand increase  1969: European Summit in The Hauge
4.2.2 Decreasing government revenue Werner plan:
 Tax cut  A plan for an economic and monetary union
 Real income of government decrease  Fixing of exchange rates
 Real income of individuals increase  Adoption of a single currency
 Purchasing power increase  This plan was never implemented.
 When government cut taxes it is done to boost spending.  1979: European Monetary System:
 A system of stable, but adjustable, exchange rates.
 1986: Single European Act:
Chapter 5: MAJOR ECONOMIC EVENTS SINCE  European single market
1999  Progressive creation of monetary union
1. INTRODUCTION OF THE EURO  1991: Treaty of European Union
1.1 How did the euro come to existence?  Signed by the 12 member states (Belgium, Denmark,
1.2 The role of the euro Germany, Greece, Spain, France, Ireland, Italy,
1.3 The Eurozone Luxembourg, The Netherlands, Portugal, UK)
2. The growth of China and India as world financial powers; = the Maastricht Treaty
3. 2007: the collapse of the subprime market  European Union
4. The Great Recession of 2007-2009  Creation of the common currency
5. June 2016: Brexit  Implemented in February 1992
Maastricht Treaty
1. The introduction of the euro  4 convergence criteria: required to enter the european and economic
 European single currency union:
 Launched on 01.01.1999 Control over inflation
 Adopted by 12 of the 15 countries: Austria, Belgium, Finland, Control over public debt and public deficit
France, Germany, Greece, Ireland, Italy, Luxembourg, the Exchange rate stability
Netherlands, Portugal, Spain Convergence of interest rates
 3 decided to stay out: Denmark, Sweden, The United Kingdom.  Establishment of the European Central Bank.
1.1 How did the euro come into the existence?  1998: European Central Bank (Frankfurt) - became responsible for the
 Inception of euro = begging of the final stage of Economic and monetary policy of the member states.
Monetary Union (EMU) Handle transactions in EURO.
 Even euro did not exist as a physical currency, yet (it o ≠ (have no euro for currency) Sweden – but will have to join the
appeard in 2002) Eurozone in future according to the terms of the treaty.
 Euro was treated on financial markets o Bulgaria, Croatia, the Czech Republic, Hungary, Poland, Romania
Has issued coins and banknotes since 2001. do not comply with the convergence criteria.
o In 2000 Denmark rejected the adoption of the euro in a
referendum, Denmark and UK: “opt-up”
o The UK out of the Eurozone, will also leave the European union,
1.2 The role of the euro after voting for BREXIT in june 2016.
 In 1991 the Soviet Union disappeared, so a new power had to be created
in Europe in order to challenge America Hegemony (American Power). It
was important to creat a real union, why the euro was created.
 The euro added liquidity and flexibility to financial market.
 The euro today is the 2nd most important international currency, after US
dollar. 2. The Growth of China and India as world
 Euro has some advantages:
o No fluctuating exchange rates
financial powers.
o No exchange costs
This advantages are obvious when you travel abroad or when you  The rise of China and India as the financial powers was
shop online on websites that are based in another European country. extraordinary
o Cross-border trade (easer for businesses to conduct)  China and India = 1/3 of world’s population
o More choice for consumer. China
 Astonishing economic growth in the last few decades:
1.3 The Eurozone o 1978: program of economic reforms to increase its GDP
o 9th rank > 2nd (2013)
 Refers to the countries that use the euro as the single currency
o 1.3m millionaires
 Currently there are 28 countries ( 27 + UK)
 In the past: China and India used to be seen as the provider of cheap
 19/28 use euro as the common currency
labor and cheap manufactory, that’s why many companies decided to
 338.6 million people outsource work and production in China and India in order to make more
profit.
 The EUROZONE  Outsourcing - When a company outsources it pays to have part of its
work done by another company (externaliser, soustraiter)
o Germany the biggest economy power in the Eurozone, followed
 Today: many companies decided to stay in China and India because there
by France.
find talented and skilled professionals ( especially in HIGH-TECH )
o PIIGS: Portugal, Ireland, Italy, Greece and Spain represent the
o Scientists and engineers (trained more than in US)
weaker economy of the Eurozone.
o Internationally competitive IT(information and technology)
o Austria, Belgium, Cyprus, Estonia, Finland, Latvia, Lithuania,
community (Bangalore - India)
Luxembourg, Malta, The Netherlands, Slovakia, Slovenia.( euro
 In terms of technology, the balance of power is moving west to east (
as unique currency)
from the US to China and India)
 Pressure on investors and businesses :
↗ knowledge of the legal and cultural systems
 But still extensive rural poverty in India and China :
4. The Great Recession of 2007-2009
- 2010-China : between 100 and 130M people earned less than $1.25 a  According to the American Bureau of economic research, the great
day (=the minimum benchmark set by the World Bank) recession started in December 2007 and ended in June 2009.
- 2010-India : 54% of India’s population below the World Banks’s  The main causes of the great recession are 1. The subprime mortgage
benchmark. crises, 2.the financial crises that followed.
 According to specialists, this recession is the most severe downturn since
Great Depression of the 1930s.
3. 2007: The collapse of the subprime market  The difference between - depression is a severe form of recession.
= the subprime mortgage crisis Great depression (1930s) Great
Recession (2007-2009)
 2001: 9/11 terrorist attacks GDP decline by 10% declined by
o The Federal Reserve cut interest rates to historically low 2.8% (in 2009)
levels(this reaction has a positive reaction) Unemployment reached 25% reached
o The housing market soared for several years ( people wanted to 10%
buy their own house)
= opportunity for lenders to capitalise ( to make profit)  2007:bursting of the housing bubble
o Mortgages extended to people unable to pay them back. o Consumer spending ↘
= subprime mortgage o Business investment ↘
o Unemployment ↗
A mortgage = an agreement that allows tou to borrow money from a bank,  Between 2008-2009 8.4 million americans lost their jobs.
especially in order to buy a house.  Summer 2009: the economy stopped contracting
Subprime = it describes the practice of lending money, especially to buy a house
to people who may not be able to pay it back.
Grammair point: THE USE OF PREPOSITIONS
 Adjustable-rate loans:
o At the beginning: low interest rates
o Interest rates skyrocketed (increased rapidly) > people had to Unemployment rate rises by 3% (les quart)
pay more  Unemployment rate was at 6% and now it is at 9% = +3%
o 2007-2009: defaults ↗ Vs.
o Many banks went bankrupt Unemployment rate rises to 10%
o Many firms quoted on the New York exchange lost large  Unemployment rate was at 8% and now it is at 10% (le point d’arriver)
amounts of money.
o Global recession – collapse of the subprime market in the US
contributed to the global recession)
o This split will be very complicated ( they want to continue trade,
5. June 2016: Brexit to be friends)
 EU: UK will stay in the single market only if it allows EU citizens to
 Portmanteau: “Britain” + “exit” live and work in the UK
 Britain = United Kingdom (United Kingdom of Great Britain and Northern VS.
Ireland)  Brexiteers: no freedom of movement
o England + Wales + Scotland + N. Ireland  “Leave” following the results of the referendum the value of the British
 Referendum currency (pound) drops.
o 23rd June 2016  Because economic elements seemed to indicate decline, the bank of
o Leave or remain? England decided to cut (reduce) interest rates (0.5%>0.25%), in order to
o Leave won by 53% to 48% prevent recession, and to stimulate investment and boost the economy.
 England and Wales voted strongly for Brexit:
o England: 53.4% vs. 46.6%
o Wales: 52.5% vs. 47.5% Chapter 6: Government in the market
 Scotland and Northern Ireland backed remaining in the EU:
o Scotland: 62% vs. 38% economy
o Northern Ireland: 55.8% vs. 44.2% 1. An overview
2. Market failures
2.1. Externalities
2.2. Public Goods
2.3. Monopolies
3. Forms of government policies
3.1. Nationalisation and privatisation
3.2. The example of the UK

I/ An overview
Business activity is based on producing goods or services, this is the role of
firms and suppliers; and on consuming of goods or services, this is the role of
consumers. The government plays a major role in business activity too. In the
majority of developed countries, government activity represents between 30 and
 London voted for remaining, because of the big businesses
40% of GDP. Government has a significant influence on the market and businesses.
 David Cameron was in favor of remaining and he resigned:
The government can play many roles in the economy. It can be a consumer of
o Theresa May, also in favor of remaining in EU, but she said that
resources, as an employer for example. It is also a supplier of resources, because the
she will respect the well (volonte) of the people.
government can supply public buildings, infrastructures… the government also
 The UK had to invocue article 50 of the Lisbon Treaty:
o The 2 sides (UE & UK) have 2 years to agree on the terms of the consumes goods and services, threw government spending. The government is a
split(divorce) supplier of goods and services too. The government regulates business activity with
laws (employment). It is a redistributor of income and wealth via the taxation system. The steel production produces air pollution, that is not good for consumers. It should
It’s a promoter of economic development, because it can help industries by giving be taken out from the cost of production because it is a negative effect on the
subsidies. It’s a regulator of the economy, threw fiscal and monetary policies. consumers. But it is not, so the cost is for society to pay, most especially by people
It’s a major actor in business activity. According to economists, government has a living next to the production site that will be affected by the air pollution. This cost
role to play because the market mechanism does not always deliver/give the best for society is not included in the market price!
solution to the problem of resource allocation. Whenever the market does not Whenever the market price does not reflect all the cost and production of the market
operate in the good way, whenever there’s a market failure, the government has a price, it is a market failure.
role to play. This idea of market failure provides raison for government intervention. B. Public goods
These reasons for government intervention may be economic or social, or both. Public goods are an answer of market failure. Public goods have large external
II/ Market failures benefits. Because of this, they are socially desirable, but privately unprofitable.
Economists distinguish between three main forms of market failures.  Street lights. They are a public service, no private company would like to pay
A. Externalities for this, because it will cost a lot of money, but the company would gain no
 Externalities = the costs and benefits of production (or consumption) that profit.
are experienced by people other than producers (or consumers), i.e third They are also said to be non-rival in consumption and non-excludable.
parties. Non-rival means that the consumption of good or service by one consumer does not
prevent the consumption by another consumer at the same time.
 External benefits vs. external costs Non-excludable is when non-paying consumers can’t be prevented from enjoying
- external benefits = positive externalities the benefits of a good or a service.
 third parties are affected beneficially by an economic activity. They are only provided by the government and funded through the taxation system.
e.g a company that provides first aid classes to its employees in order to Some goods and services that are provided by the government can also be provided
improve job safety may be the source of external benefits since this action by the private sectors, for example education (public school or private school).
may save lives outside the company Why are public goods considered as a market failure? it’s because the free market
 external costs = negative externalities does not produce goods and services that are either unprofitable or not provided
 when third parties are affected adversely by an economic activity. by the private sector.
e.g air pollution from a chemical firm may cause damages to public health, C. Monopolies
agriculture and buildings.  Power concentrated into a monopoly = market failure
Grammaire : attention différence entre damage (dommage) et damages (dommages  A monopoly = a good or a service is provided by a single supplier
et intérêts).  imperfect competition
Externalities are a signs of market failures.  Monopolies tend increase prices
 a steel producing company pay everything. It pays the raw materials, the  consumers pay prices higher than market equilibrium.
equipment, its workers. These costs of production will reflect the price of  Government intervention ?
steel on the market. But they didn’t pay for air pollution. It should be -the government should pay in the economy
remove from the total price because people suffer from this pollution, and -but what role ?
its costs for society to “cure” people from this pollution. -where the boundaries should be places between private and public (i.e
- Market price = raw materials + equipment + wages. collective) action ?
III/ Forms of government policies. From 1979 to 1990 it was the golden period of privatisation. Privatisation policies
Economy all around the world is divided in 2 sectors (public/private). were embodied by the Conservative prime minister Thatcher. “privatisation was
The public sector refers to the activity in the enterprises or in the industry sectors fundamental to improving economic performance”. = decrease in size and influence
that are managed by government agencies. of the public sector to improve the supply side.
The private sector represents business activities that are not directly managed by a When she was elected, it became a conservative government. She decided to
government agency. In all countries, whatever their economic and political system, reduce the size and influence of the public sector in order to improve the supply
some goods and services are provided by the state (public sector). side of the British economy. As a consequence, the government decided to privatize
There’s one extreme situation, when centrally planned economies, such as Cuba the sale of state-owned businesses. The goal was to increase efficiency and general
(communists), where public ownership is significant. In centrally planned performance, in order to increase competition and consumer choice.
economies, public ownership is substantial (important). It means the public sector According to conservative, public businesses, were not interested in efficiency and
is more influential than the private sector. Public ownership is substantial but not performance, because there was no direct competition. When their revenues were
total because the private sector still exists, but it’s limited in size and influence. not efficient, public businesses could turn to government for financial support. On
Free market economies are the opposite (American economy). The means of the contrary, private businesses are exposed to the test of the market and if they
production are predominantly owned by the private sector. The private sector is want to survive, they have to satisfy consumers and the financial market (to make
more influential than the public sector. Yet, even if in this type of economy the profit). Privatisation is the solution for Thatcher.
private sector has the substantial role, there are some activities that are nationalised There are various forms of privatisation.
even monopolized by the state. First, privatisation can refer to the sale of nationalised industries to the private
 Nationalisation and privatisation. sector, or industries in which the G had a substantial shareholding.
A nationalisation is when the government takes control of a company or industry. It can also take the form of the contracting-out of services that are normally
- To consolidate power contracted by the public sector (like hospital cleaning, school restaurant-meals).
- To prevent foreign investors to take over local economies Another form of nationalisation is the deregulation and liberalisation of activities.
- To save companies from bankruptcy. We also have the injection of private capital into areas traditionally financed by the
The opposite of nationalisation is privatisation. Privatisation is the transfer of public sector. And under Thatcher’s government, privatisation can also take the
ownership from a government organisation to a private company. form of privatisation of government agencies.
B. The example of the UK. More than 50 companies were sold or privatized between 1979 and 1990. And
Why the government was involved in this process? Which were the consequences? Thatcher managed to raise £50bn for the Exchequer (= caisses de l’état).
After the SWW, there was a large program of nationalisation. From 1914 to 1951, it Was the privatisation in the UK successful and/or beneficial?
was the golden period of nationalisation. This program was led by the Clement Let’s look at the benefits:
Attlee (leader of the labour party), he succeeded Churchill. He decided to nationalise - The government has received substantial revenues from the sales of public
many industries including: coal industry, gas industry, electricity, rail and steel. assets.
Why? The UK suffered a lot from the SWW, there was a lot of damage: after the - Because of competition between private businesses, customers managed
destruction of the country, the British G wanted to rebuild the country and the to benefit from an improved level of services and from lower prices.
economy, and to achieve full employment, and economic prosperity. After 1951, - Many shareholders have made windfall (unexpected) gains from share
there was no more industrialisation. transactions.
There are also negative points:
- a substantial number of employees lost their job in the process of satisfaction possible from the limited resources = “utility
privatisation because businesses were restructured. maximization”
- Salaries increased but not for everyone. the main ‘gainers’ in terms of salary  When a business wants to increase saves and wants to be successful it
= senior executives rather than ordinary personnel (the people at the top of has to identify the wants of consumers, in other words the business must
the pyramid). Ordinary workers did not benefit from privatisation in term of have a good understanding and knowledge of the market.
salary.  Identify the wants of consumers
There were benefits but also negative aspects for privatisation. But the greatest o React to consumer tastes and market conditions;
o Influence and manipulate demand through marketing and
impact of the privatisation programme lead by Margaret Thatcher was of a cultural
advertising.
level, because this program promoted the idea of the superiority of private and
o Generate demand for a good.
individual enterprise.
This idea is still predominant in the UK today: If you want to be successful, don’t 1.2 Factors influencing demand
count on the government, count on yourself.
 Income - The demand for a good depends on the quantity of money
people are able to spend.
Chapter 7: Demand and Supply o When incomes ↗, purchasing power ↗ as well. (people can
(l’offre et la demande) afford (permettent) to buy more)
1. Demand o As a result  an ↗ in income has positive effect on the
1.1 Definition demand
1.2 Factors influencing demand o Conclusion: ↗ in income leads to a ↗ in demand.
1.3 Understanding consumer behavior  Tastes and preferences: usually when the tastes and preferences of
1.3.1 Observations of market behavior the goods are great its demand ↗ on the contrary when the good
1.3.2 Market surveys goes out of fashion the demand for this good ↘.
1.3.3 Market experiments
o Tastes and preferences often change  change in demand.
2. Supply
o Changing in fashion + advertising  change in demand.
2.1 Definitions
2.2 Factors determining supply  Prices of related goods
3. Market equilibrium o The demand for a good is also influenced by the price of other
3.1 The demand curve and the supply curve goods of other substitutes.
3.2 The equilibrium price and quantity. o Price of a substitute ↘  demand for the original good will ↘.
o If the price of the substitute ↗ and is equal to the price of the
1. Demand original good  the demand of the original group ↗.
1.1 Definition  Prices of complements
 Demand = the amount of a good people want to buy o Some goods are complementary with each other and the fall in
 Limited incomes > choices the price of a good will positively influence the demand for
o Costs and benefits (usually consumers consider the costs and the the complementary good. (price of a good decrease 
benefits of a purchase (achat) in order to get the maximum demand for a complementary good increase)
 Consumers’ expectations about future prices and incomes:
o Future ↗ in price  present demand ↗ 1.3.2 Market surveys
o Future ↘ in price  purchase is postponed + present demand  Consist of asking people to answer questions of a
↘ market research.
 Advertising = very important factor in increasing demand, the goal  Quick and cheap
of advertising is to influence consumers in favor of a product, also to  Questions related to all aspects of consumer behavior
convince consumers about the superior quality of a product. e.g. present and future patterns of expenditure
(newspapers, TV, radio, internet etc.) how you respond to changing product
o Successful advertising compaign  demand ↗ packaging or price
(remember for the exams, and to be able to explain)  Specific consumer groups can be targeted
 Disadvantage = relative unreliability
1.3 Understanding consumer behavior  Accurate information requires:
 In order to get a better understanding of the market businesses o A random sample;
can gather (collect) data on consumer behavior. o Clarity of the questions;
 3 ways of collecting data: o No leading questions. (questions orientees/ tres
o Observation of market behavior guidees)
o Market surveys (enquette) o Willingness (personnes sont pres, disposer to
o Market experiments repond) of respondents. (If people refuses  the
informations is distorted (ne correspond pas a la
1.3.1 Observation of market behavior realite))
 Data on how demand has evolved over time o Truthful response
= detailed information of sales analyzed by o Stability of demand (consumers ask questions about
week/month/year what there are going to do/buy, but they can
 Data on how the various determinants of demand have change their mind, so there will be a gap between
changed over time. the answer and the reality).
 The firm can use this informations to estimate how 1.3.3 Market experiments
changes influenced demand in the past  how they may  A market survey asks consumers to imagine how they
influence demand in the future. (what was true in the will behave, on the contrary, the market experiment
past, is not always true in the future, because observes actual/real consumer behavior and simulated
consumers = human, humans change their minds. conditions.
 Observations of market behavior are not always reliable, e.g. a blind taste test for a new brand toothpaste
this is why many firms prefer to turn to market service – people are not influenced by marketing
and market experiments. strategies, and when the experiment is finished,
consumers are asked questions about their real
perceptions of the product.
e.g. a laboratory shop to simulate a real  If the number of the suppliers producing a group ↗  supply
shopping experience – ↗
o some people are giving money to spend in this “lab shop”
o their reactions to prices, to packaging are monitored.
3. Market equilibrium
o Disadvantage = Consumers may behave differently when
A market consists of buyers, consumers – demand side
are observed. and sellers…- supply side.
2. Supply
2.1 Definition 3.1 The demand curve
 Supply = the amount of a good that is produced by firms.  Always by convention economists put prices on the vertical axes, and
 Is closely related to the notion of profit. quantity on the horizontal axes.
 A demand curve – a graph showing the quantity of a good that buyers wish
 The firms makes profit when it earns more from the sale of the
to buy at each price.
good than the good costs to produce.
 Always downward-sloping.
 When a business wants to ↗ its profit it has 2 solutions 3.2 The supply curve
o either the business can ↗ its revenue by producing and  A graph showing the quantity of a good that sellers wish to sell at each
selling more price
o It can also reduce its costs of production  Always apward—sloping.
3.3 The equilibrium price and quantity
2.2 Factors determining supply  It is reached when the quantity people want to buy/purchase =
 Input costs = if input costs ↗ supply may ↘, because the manufacture quantity firms produce.
the production of the good may be less profitable.  The equilibrium is reached when the quantity demanded is equal to
 Technology = advanced  costs of production ↘
the quantity supplied.
↗ may improve efficacy
 Government influences
 Equilibrium = intersection of the demand curve and the supply
 Subsidies – government payment that supports a business or curve.
a market, with subsidies, supply may ↗  When the values of price and quantity for which quantity supplied
 Taxes – the production of a good is discouraged is tax on its and quantity demanded are equal.
production is imposed.  Market equilibrium occurs when buyers and sellers are satisfied
 Regulations = a government intervention in a market that with the respective quantities at the market price.
influences/ affects price/ quantity/ quality.  Market equilibrium it’s when consumers can buy as many unites
 Change in availability of resources of a good as they want at the market price and sellers can sell all
 when a resource become scarcity, the supply of goods using
they want at that price.
this particular resource will decline. ( scarcity supply↘)
 natural disasters (flood-inundations, drought- seceta,
 If consumers can buy all their units = it is no shortage
cyclone…)  supply ↘  In buyers can sell all their units = it is no surplus
 Number of firms in the industry  If the price ↗ (superior equilibrium price)
 Quantity supplied > quantity demanded
= an excess supply
 If the price ↘ (bellow the equilibrium price) 1. Types of competitions
 Quantity demanded > quantity supplied 1. Perfect competition
= an excess demand  Many firms
 In a situation of shortage will compete with each other, and some  Same product
buyers will be turned away (will not be able to buy a product) .  Small firms  no influence on price
 Market equilibrium is in fact achieved by the actions of sellers and  “Price takers” = describes a firm that must accept
buyers. prevailing (dominant) prices in a market, because
 If the initial price is to high (product is too expensive) there will be the firm is so small that the firm cannot influence
surplus; the price, market share not large enough to
Price+++  excess supply = surplus  suppliers ↘ prices  and it influence price.
will be achieved the market equilibrium.  “market share” refers to the number of items that a
If the initial price is to low (product is too cheap) there will be company sells compared with the number of items of
excess demand; the same type that other companies cell.
Price- - -  excess demand = shortage  competition (between
buyers)↗ prices 2. Monopoly
 Just one firm in the industry
= market self-regulate.  No competition
 Industry = the people and the activities involved
CHAPITRE 8: COMPETITION (implique) in one type of business (gas industry,
electricity industry, tourists industry);
1. Types of competitions
 A type of commerce;
2. Perfect competition
3. Monopoly
3. In the middle monopolistic competition (closer to Perfect
3.1 Barriers to entry
competition)
3.2 Price
3.3 Examples of monopolies  A type of competition where like perfect competition
3.3.1 Google there is a lot of firms competing
3.3.2 Monsanto  New firms can enter the industry, the market.
3.3.3 Luxottica  Differential products  Control over price
4. Imperfect competition
4.1 Monopolistic competition 4. Oligopoly (closer to Monopoly)
4.2 Oligopoly  A few firms
4.2.1 Collusive oligopoly  A restricted entry of new firms
4.2.2 Non-collusive oligopoly = imperfect competition
 Types of competition depend on: “economies of scale”: the reduction of production costs
 The degree of competition that is a result of making goods in large quantities.
 Freedom of entry?  The more you produce, the less is costs.
 The nature of the product  Under perfect competition, firms are too small to make economies
 The degree of control over price of scale.
 Type of competition:  Firms expansion  economies of scale
 The behavior of the firm  Market power
 The performance of the firm (price, profit,  Ability to undercut (you can sell at lower prices)
quantities) smaller firms
 End of the perfect competition
2. Perfect competition 3. MONOPOLY
 Illustrates an extreme form of market self-regulation, because in  One firm
fact under perfect competition firms subject to market forces, the  Influence price
firms are so small that they can’t influence prices  Run competition out of business
 Prices determined by the interaction of demand and  Prevent competitors from entering the market
supply.
 Conditions for perfect competition In order to maintain this position a firms has to built barriers to prevent
 Price takers the entry of new firms:
o Many firms 3.1 Barriers to entry
o Production of a small proportion of total industry supply 1. Natural monopolies and economies of scale:
1. no power other prices Natural monopolies = refers to a situation in which one
2. freedom of entry (new firms can easily enter the firm/company is able to supply the hole market for a
market) product or a service,
3. the nature of the product (homogenous product)  in this situation, trying to ↗ competition + new
 no branding or entrants  loss of efficiency
advertising Example: 2 bus companies serving the same routes = unprofitable  each
4. perfect knowledge of the market (price, costs, company would run with only half-full buses.
quality)  A new entrant will have difficulty to succeed
 Monopolists are able to make:
Agricultural industry is very close to perfect competition  Economies of scale
(esp. fresh vegetables)  Price below the cost of the new entrant
 The new entrant driven out of business
 Perfect competition = rare  Natural monopolies
 Economies of scale  Essential services
 Nationalized or regulated by governments.
 Competition exists
2. Economies of scope:  Many companies have fails to take market share
 Large range of products Ex. Microsoft’s Bing, Yahoo
 Costs of production ↘ Pro
 Prevent new firms from entering the market  Used as a verb
 Undercut new entrant’s prices. Was used as a verb for the first time in 1998
3. Product differentiation and brand loyalty. 2002: Buffy the Vampire Slayer.
If a firm produces a clearly differentiated product 2006: Oxford English Dictionary + Merriam-Webster Dictionary
that the consumer can associated with a particular brand
than it will be difficult to a new firm to enter the market. 3.3.2 Monsanto
4. Legal protection  A chemical company based in the US;
 Patent – the official legal right to make or sell an invention for a  1960: provides chemical weaponry to the US government ;
particular number of years At the end of the Vietnam War it became clear that
 Copyrights Monsanto could no longer profit from the manufacturing of
 Licensing chemical weapons.
  As a consequence, at the end of the Vietnam war: new type
3.2 Price of market
 One firm in the industry  In 1980: the company
 Influence on price o Started to genetically modify seeds and organisms, in
 ↗ price order to protect the company, the company patent it’s
 Consumers have no alternative firm to turn to genetically modified it’s seeds and organisms
= “PRICE MAKER” the monopolist can choose what
price to put  Today: 90% of the global seed market.
o This monopolistic position was acquired throw the
3.3Examples of monopolies patenting of GMOs and seeds.
3.3.1 Google o 80% of US corn market.
 Monopoly in internet searching o The company does not grow corn, but it genetically
 2015: 75% of the web search market modifies it. The corn market it’s a crucial market: food,
sweet, rubber tires, aspirin, antibiotics, baby powder,
 The favorite search agent to find information online.
toothpaste, alcohol, milk cartons, paper products,
 2015: 13 billion times/month
textiles, shoe polish, batteries..
 Advertising based on search keywords  $$$
 Google= a monopoly?
Against
 Google is not a monopoly because if you want to use another
search market, you can.
3.3.3 Luxottica Example: cleaning products (dish soap, hand soap)
 Manufacturer of glasses Available in a lot of varieties
o Created in 1961 in Italy Serve the same purpose.
o 1980s: bought various eyewear companies   Few options to differentiate.
international  Heavy marketing
o Headquarters in Milan  ↘ Price  ↗ sales.
 Sunglasses + prescription frames  ↗ Price + packaging  quality and sophistication.
o Ray Ban, Oakley, Persol  Developing an green image, an eco-friendly image, eco-
o The company also produces glasses for luxurious responsible;
brands In reality all equally effective.
Chanel, Prada, D&G, BVLGARI, Armani Characteristics of monopolistic competition:
o Us leading vision- care providers  Independence:
Eye med, Vision care  A small market share (a low degree on a market power)
In practice:  Those companies have a limited impact on competitors
o Very few perfectly competitive markets or pure monopolies. (the decisions of one firm will not have a significant
o Most firms compete with other firms.(there is no monopoly) impact on its competitors.)
o In fact firms are not price takers, because they have some degree of  Freedom of entry:
market power.  New firms are free to enter the market, similarity with
o Most markets lie between the two extremes perfect competition.
= imperfect competition  Product differentiation
 Monopolistic competition  Each firm produces a product or service that is different
 Oligopoly from what competitors produce.
Example: restaurants, hairdresses…
4. Imperfect competition
4.1 Monopolistic competition (closer to perfect competition) 4.2 Oligopoly
 Many firms  Refers to an industry in which they are just a few firms
 Similar products/ services  Large proportion of market share.
 Not perfect substitutes  All oligopolies are different.
 Same degree of market power  Differences in structure and/or in behavior:
o Price makers  Virtually identical products ( sugar, chemicals, petrol)
 Monopolistic competition combines elements of perfect  Differentiated products (cars, drinks)
competition and elements of monopoly.  Marketing = crucial
 Characteristics of an oligopoly
 You have barriers to entry (similarity with monopoly)
The barriers of oligopolies are the same as the barriers of
monopolies.  Conditions for collusion:
 Interdependence (they have an impact on each other)  Only very few firms;
If a firm changes its price, the sales of the competitors will be  Open with each other about costs and production
affected, and as a consequence the competitors will change methods;
their prices as well.  Similar production methods and costs;
 Drinks are usually oligopolies:  Similar products
 Coca Cola that shares the market with ex. Pepsi  Significant barriers to enter.
Ford
Nintendo 4.2.2 Non- collusive oligopoly
 Oligopolists can:  Event they collude there is always the temptation to become
 Collude with each other. (associate) individual oligopolists.
≈ a monopoly  ↘ prices
 Compete with rivals to gain a larger market share.  Sell more than pre-established quota
  Retaliation
4.2.1 Collusive oligopoly (when they associate)  Price war
 Collusion  Prices ↘ ↘↘
 Prices, market share, advertising expenditure…
 A non- competitive secret agreement CHAPTER 9: EXPANSION
 Disruption of the market’s equilibrium
1. Expected growth
= in stand of competing, companies conspire and work
1.1 Change in business structure
together.
1.2 Methods of growth
 Restriction of the supply of a good  ↗ price  maximize
1.3 Expansion issues
prices
2. Unexpected growth
 Price fixing
3. How to grow a business
= agreement to collaborate and set a minimum price
3.1 Internal/Organic growth
 A formal collusive agreement = a cartel
3.2 External/Inorganic growth
 ≈ monopoly
3.2.1 Mergers
 𝑎𝑔𝑟𝑒𝑒 to divide the market between them
3.2.2 Acquisition
 𝑎 𝒒𝒖𝒐𝒕𝒂
3.2.3 Strategic alliance
“Quota” refers to the output that a member of a cartel is allowed to
3.3 Advantages and disadvantages
produce or sell.
3.3.1 Advantages of organic growth
 Illegal  against public interest
3.3.2 Disadvantages of organic growth
 Firms tacitly collude
3.3.3 Advantages of external growth
 Avoid price wars.
3.3.4 Disadvantages of external growth
Typically business expansion is defined as a business strategy in  Insertion of a new managerial level
which growth is obtained by increasing a number a stores in which
customers can buy a product or a service. Chief executive
 Business expansion = business strategy
↗ Number of stores  growth Division 1 Division 2 Division 3

1. Expected growth Production Finance Sales


1.1 Change in business structure Marketing
 Business expansion  An intermediate managerial level
 A stage in the life of a company it often lease to an  The firm = divided into a number of divisions
 Each division = a mini-firm ( a firm within a firm)
increase of financial fortunes for owners and
 Business growth
employees.
 Disagreement over goals and projects
 Changes in structure, needs and objectives.  Market share ↗
When a business expends a management of a company  New strategies for dealing with larger competitors.
becomes less and less centralized.  Need for additional capital
 The internal structure of a company depends on its size.  New responsibilities for shareholders and investors.
 Small firms = centrally managed
 Large firms = complex organisational structure. 1.2 Methods of growth
Small firms  Selling more of the same product
 U-firm  Expanding the range of products or services sold
 Introducing a new product
 Unitary form
 Joining industry cooperatives
 Typical structure of small and medium-sizes firms.
 Turning the businesses into a franchise
Chief executive: (controls and coordonate the actions of different  Licensing the products for others to make
departments)  Growing through acquisition or merger
1. production  Seeking foreign markets
2. Finance  Public stock offerings
3. Sales  Employees stock ownership plans = ESOP (plan d’actionnariat des
4. Marketing employees)
An ESOP = a type of employee benefit plan
 Centrally managed  Encourage employees to acquire shares in the company.
 Inefficient in larger firms  Improve the performance of the company.
 Increase the value of the shares by involving
 Difficulties in communication, coordination and
shareholders.
control.
 M-form 1.3 Expansion issues
 Multi-divisional form
“Expanding a company […] means understanding, adjusting to, and managing a  Growth must be managed
whole new set of challenges – I essence, a very different business.” Sharon  Financial challenge
Nelton, Nation’s Business.  Expand financial capacity
 Spend money in order to purchase material resources
 Growing too fast  Spend money to hire people
 Demand > production capacity  Difficulties:
 Capital difficult to find
 Recordkeeping and other infrastructure needs  Capital expensive to borrow
 Establish or update systems for  Difficulty to assess sudden demand
 Monitoring cash flow and managing finances  Growth: continue or temporary phenomenon?
 Tracking investitures and deliveries
 Tracking human resources information… 3. How to grow a business
 Investment in more sophisticated communication 3.1 Internal/Organic growth
system  Cambridge Dictionary:
 Expansion capital A company develops its own business instead of buying other companies.
 Additional financing
 Organic growth
 Business plan on an annual basis
 expansion from a company’s own resources
 New marketing strategies
 Personnel issues  without resorting to borrowing or acquisition of other firms
 Hire new personnel to meet (satisfaire) the demands  Organic/internal growth
associated with new production (When a company  ↗ existing production capacity
expends a company needs more people)  Developing and launching new products
 Opportunities for staff members. (esp. for those who  Opening new business locations (national or abroad)
have been part of a company from the start)  Implementing marketing plans to launch existing products
 Delegate responsibilities directly into new markets
 Departure of some workers  Growing a customer base through marketing
 Investing in research and development
2. Unexpected growth (Croissance inentendue)
 Uncontrolled growth
Companies can also choose to expend through external growth
 Careless decisions (very quickly, without thinking about
strategies. In fact mergers and acquisitions allow companies to grow
consequences)
 Temporary relaxation of rules, that had made the more rapidly.
business successful 3.2 External/Inorganic growth
Because of this management specialists that business owners must be  Cambridge Dictionary:
cautions (prudents) when sales surge (increase dramatically, very External growth refers to the increase in sales and profits which is the
rapidly) result of buying other companies (acquisition, takeover or merger) or
 Unexpected growth = unavoidable the result of forming a business with another company (fusion)
 No response to strong demand  business left behind
In business, a takeover is the purchase of one company (the target) by
another (the acquirer, or bidder). Examen: 20 QCM courts
 Company’s sales and profits ↗ 10 questions longs
Products Markets Relatonships
 Objectives:
Conglomerate different  Not competitors
 Bring external finance
 Not the same
 Get greater market share
industry
Horizontal same same competitors
3.2.1 Mergers (fusion)
Market same different Not direct
 Two or more companies join together to make one larger company.
extension competitors
There are different types of mergers and different reasons why
companies merge. Vertical  Different Same supply chain
 But it is also an agreement between the directors and the  Used for a
shareholders of both companies. specific
 5 types of mergers: finished
1. Conglomerate merger product
= Two companies with totally unrelated business activities. Product complementary Non competitors
2. Horizontal merger extension
= Two competing companies with the same product lines
and markets. 3.2.2 Acquisition/ takeover
3. Market extension merger  The purchase of one company (= the target) by another (=the
= Two companies selling the same product but in separate acquirer)
markets.  The acquiring company = responsible for the target company’s
 Get access to a bigger market + ensure a bigger o Operations
client base. o Holdings
4. Vertical merger o Debt
= Two companies producing different goods or services for  An acquisition takes place when more than 50% of the shares of a
one specific finished product. particular company are purchased by another company.
 Increase synergy 3.2.3 Strategic alliance
“Synergy”: the value and performance of 2 merging companies > the sum  Today more and more companies tend to see strategic alliance as
of the value and performance of 2 separate companies. the best way to expend, indeed business operations can be
5. Product extension merger expended quickly without the difficulties associated with
= Two companies producing goods related to each other acquisitions and mergers.
and operating in the same market.  It is a general term that refers to a white range of alternative
 Group together products + get across to a bigger collaborative arrangements.
client base to ensure higher profits.
= A strategic alliance may be defined as a situation where two - Because of the multitude and complexity of
firms work together to achieve a mutually desirable goal. components
 Firms retain their own legal identify outside of the alliance.  use of subcontractors to supply specialist
 Strategic alliances involve: items.
o A joint venture (operation conjointe, co-entreprise)
 2 or more firms share resources to fulfil a specific  iPhone = not manufactured by Apple, Apple’s main
task. ( a new project, a new business activity) contribution is the design of the device.
o An agreement (informal) based on trust (confiance) - Because production and assembly
outsourced:
3.2.3.1 Horizontal strategic alliance  in 2015 349 suppliers in China
 Formal or informal agreements 139 in Japan
 Firms co-operate on a particular activity at the same stage 60 in US
of production 42 in Taiwan
 A joint venture They operate at the different stages of the
 Contractual agreements: assembly.
 Franchise - Some companies within the supply chain:
= a company uses another company to produce or sell Sony (Japan) = front and rear cameras
some or all of its products.  Jabil (USA) and Foxconn (Taiwan) = the
 Licensing metal phone cases
= the owner of a patented product allows another firm to Toshiba (Japan) and SK Hynix (Taiwan) =
produce it. storage
3.2.3.2 Vertical strategic alliances. TSMC (Taiwan) = ID sensor and fingerprint
 Formal or informal agreements technology
 Firms operate at different stages of an activity in order to - Assembled in China and Brazil by two
provide jointly (ensemble) a particular product. Taiwanese companies.
 One of the best known forms of vertical strategic alliances is
outsourcing (subcontracting)(externalization, soustraitance) 3.2.3.3 Networks
= a business employs an independent business to  Alliance between many firms belonging to different sectors
manufacture or supply some service/ some good rather than  Objectives
conduct the activity itself. o Access to technology and resources at lower costs
o Greater access to global markets
3.2.3.4 Reasons for forming alliances
Example:
 A strategic alliance can facilitate an entry on a new markets
 Car manufactures = major subcontractors (toutes les (when a company expends it may be interested to form an
pieces viennent de partout) alliance with an existing company in the market because this
company has local knowledge + (and has an established)  Relative loss of control (because decision making
network of suppliers and distributors powers will be delegated to managers)
 It gives the opportunity to share risks (EuroTunnel – very  When a company expends is need for a restructure (but
risqui) it requires time and also money, because you need to
Various firms participate in this projects, because it was
hire new workers + the company also need to train
risqui.
employees)
 Capital pooling (combine)
o Some projects have very high start-up costs, or  Workforce ↗  specialist managers have to be hired
running costs.  Internal growth because it depended on the company’s
There are too expensive for one firm. own- resources is Slower and more limited than
o Feasible only if firms co-operate and pool their external growth.
capital.
 With a strategic alliance it is easier to generate finance 3.3.3 Advantages of external growth (esp. of mergers and
whether from investors in the stock market or from the acquisitions)
banking sector.  External growth is usually faster than organic (internal)
growth.
3.3 Advantages and disadvantages  Customers, sales, assets and market position acquired
immediately.
3.3.1 Advantages of organic growth  A greater pool of skills and experience
Depends on the company’s own resources  When you merge with a competitor ↘ competition
 One of the main advantages is that companies better  ↗ economies of scale (the more you produce the less it
control and coordination, because they depend only on costs)
themselves
Vs. external growth  loss of control and ownership 3.3.4 Disadvantages of external growth
(acquisition)  Disagreement between managers of merging companies
 2 advantage- less expensive and less risky than
nd
 Difficult to combine organizational cultures and
external growth (capital comes from the companies’ management styles.
profits)  The corporate culture and the management
 3rd advantage - Existing cooperate culture and strategies have to be adopted to the new company
management styles are maintained  Loss of control (common of all types of expansion, more
Vs. external growth  culture cash employees, more managerial levels, managerial have to
delegate, and when you delegate, you lose control)
 Risky and more expensive (because most mergers and
3.3.2 Disadvantages of organic growth acquisitions require financing and the companies
 Hierarchical structures resources are not sufficient).
 Communication problems
 Slow decision making

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