Beruflich Dokumente
Kultur Dokumente
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.
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 employmenthigher 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
producedoverproduction 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
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
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