Managerial Economics 3

Topics: Supply and demand, Market economy, Economic equilibrium Pages: 20 (6097 words) Published: June 23, 2013
Chapter 03 - Markets, Organizations, And The Role Of Knowledge


MARKETS, ORGANIZATIONS, AND THE ROLE OF KNOWLEDGE CHAPTER SUMMARY This chapter answers three primary questions: How do market systems work? What are the relative advantages of market systems compared to central planning in large economies? Why do we observe so much economic activity conducted within firms in market economies? In addition to covering the basic principles of exchange and supply-and-demand analysis, the chapter introduces two concepts that are critical to the subsequent development in the book: specific knowledge and contracting costs. The chapter also makes the important point that individuals have incentives to choose value-maximizing organizational arrangements. An appendix presents the basics of present value analysis and the valuation of common stock. It also discusses the concept of stock market efficiency. This appendix provides useful background material (for example, when instructors want to discuss the stock market reactions to events).

CHAPTER OUTLINE GOALS OF ECONOMIC SYSTEMS PROPERTY RIGHTS AND EXCHANGE IN A MARKET ECONOMY Dimensions of Property Rights Managerial Application: Patent for Managerial Application: Property Rights Insecurity in Columbia Gains from Trade Managerial Application: While Animosity between the Governments of Venezuela and the U. S. Grow, So Does Trade Managerial Application: Strategic Business Planning—Ignoring Economics of Trade Academic Application: Gains from Trade BASICS OF SUPPLY AND DEMAND The Price Mechanism Managerial Application: Shifts in Demand, Quantity, and Price at the PGA Tournament Linear Supply and Demand Prices as Social Coordinators Managerial Application: Supply of Online Resumes Bogs Down Employers Measuring the Gains from Trade Government Intervention Price Controls Price Floors Academic Application: Labor Unions and Minimum Wage Laws Externalities and the Coase Theorem 3-1

Chapter 03 - Markets, Organizations, And The Role Of Knowledge

Academic Application: Property Rights in Russia Academic Application: The Coase Theorem and the ―Fable of the Bees‖ Managerial Application: Property Rights Help Make Niger Greener MARKETS VERSUS CENTRAL PLANNING General versus Specific Knowledge Managerial Application: Topic-Specific Search Engines Managerial Application: The Dynamic Nature of Specific Knowledge Managerial Application: Use of Specific Knowledge at Apple Computer Knowledge Creation Academic Application: Markets versus Central Planning in Russia Managerial Application: Converting IT Wetware into Software Specific Knowledge and the Economic System Managerial Application: Fiat—Using Specific Knowledge about Developing Markets Incentives in Markets Managerial Application: Japan, Computers, and Industrial Policy CONTRACTING COSTS AND EXISTENCE OF FIRMS Contracting Costs in Markets Academic Application: Herbert Simon on Organizations and Markets Contracting Costs within Firms Efficient Organization Academic Application: Corporate Focus and Stock Returns Managerial Objectives Academic Application: CEO Turnover and Firm Profits Academic Application: Firms versus Markets—When Markets Ruled MANAGERIAL DECISIONS Managerial Application: Hewlett-Packard and Corporate Focus SUMMARY APPENDIX: SHAREHOLDER VALUE AND MARKET EFFICIENCY

Present Value Share Value Stock Market Efficiency TEACHING THE CHAPTER Students are likely to be familiar with many of the concepts presented in the chapter, but it is important to review these concepts before proceeding with the rest of the text. This chapter reviews many economics basics such as using markets to allocate resources, the importance of private property rights, and how applying the principle of comparative advantage can increase gains from trade. Students are introduced to functional forms of supply and demand curves in this chapter and students with less extensive economics backgrounds might not be familiar with this...
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