Business Economics
Ondrej Bednar


Lesson 1: Introduction to the course and to the business economics
●Student should be able to explain what business does economics studies
●Key Concepts
●Structure

Business Economics
●What is business?
●What types of business do we know?
●Types of economic societies
●Fundamental questions of society
●What is economics
●Economics, economy, economic….
●Scarcity

Key Concepts
●Scarcity
●Opportunity costs
●Rationality
●Marginal changes
●Unintended consequences
“There is no such thing as a free lunch”
Examples, examples

Ideas
●Efficient allocation of resources and markets
●Trade can be mutually beneficial
●Market outcomes can often be improved by governments
●Externalities
●Market power
●The ability to produce  goods and services determine standard of living

Microeconomics vs Macroeconomics
Microeconomics
●Single markets
●Business Optimisation
Macroeconomics
●All markets within economy aggregated
●GDP, Inflation, Balance of Payment, Unemplyoment …

MicroEconomics for business: Where we are
Households (HH)
Firms (F)
Goods and Services Market
Factor Market
Money Flows

Firms
●Maximize profits �
●Π(Q) = TotalRevenue-TotalCosts= p(Q)⋅Q+C(Q)
●Maximizing Π with respect to quantity …0 =p(Q)+Qp′(Q)+C′(Q) ->
p(Q)+Qp′(Q)=C′(Q).... MR=MC Marginal Revenue= Marginal Cost

Revenue Function
●Depends on market structure where the firm operates: prefect or imperfect competition
●Total Revenue, Average Revenue, Marginal Revenue Graphs
●

Cost function
●Fixed vs variable costs distinction
●Production function: Total product TP, Average Product AP, Marginal Product MP
●Factors of production L, K, A
●Total Costs, Average Costs, Marginal Costs Graphs

Households optimisation
Total Utility, Marginal Utility, Budget


Elasticities
●εd​=%ΔQ/%ΔP​
●How big a change causes in Quantity demanded causes price change
●What makes demand more elastic

Market interactions graphs



Market Structures
Monopoly, Oligopoly, Monopolistic competition, Perfect competition


Repetition
Profit-optimizing company in imperfect market
Break-even analysis
Price elasticity of demand and supply and what affects the elasticities

Elasticities continued
Income Elasticity
Cross Elasticity
Example:
D1:P=20-5Q
D2:Q=5-0.25P

Macroeconomics



Main macroeconomic variables
Product
Inflation
BoP
Unemployment rate
Interest Rate
Exchange Rate

PRODUCT



Growth Economics
•Cycle/wave name Period (years)
•Kitchin cycle (inventory, e.g. pork cycle) 3–5
•Juglar cycle (fixed investment) 7–11
•Kuznets swing (infrastructural investment, demographics) 15–25
•Kondratiev wave (technological basis) 45–60

Fiscal Policy
Fiscal policy refers to how the government uses spending and taxation to influence the economy.
•Spending: On infrastructure, public services, social benefits, etc.
•Taxation: Income tax, corporate tax, VAT, etc.
Goal: Promote economic stability, reduce unemployment, and support growth.
Contrast with Monetary Policy:
•Fiscal = government (Ministry of Finance/Treasury)
•Monetary = central bank (interest rates, money supply)

Types
●🟢 Expansionary Fiscal Policy
●Used during a recession
●Involves increasing spending or cutting taxes
●Goal: Stimulate demand, reduce unemployment
●Example: 2009 U.S. stimulus package during the Great Recession
●🔴 Contractionary Fiscal Policy
●Used when economy is overheating (high inflation)
●Involves cutting spending or raising taxes
●Goal: Slow down inflation, reduce deficits
●Example: Austerity measures in Europe post-2010 debt crisis

Main schools
●Keynesian View
●Pro-fiscal intervention
●Believes demand drives the economy
●Advocates government spending during downturns to offset weak private sector
●“The boom, not the slump, is the right time for austerity.” — Keynes
●Classical / Monetarist View (e.g., Milton Friedman)
●Skeptical of government intervention
●Believes markets self-correct
●Advocates limited fiscal policy, prefers monetary policy
●“The use of fiscal policy to offset the business cycle has not been a success.” — Friedman

Monetary Policy- lesson goals
●Explain what a central bank can control and what it influences indirectly.
●Trace the transmission mechanism from policy rate → financial conditions → spending → inflation →
hiring.
●Predict which kinds of firms benefit/hurt when rates rise/fall (and why).
●Turn a rate/inflation scenario into a pricing, investment, and financing decision.

Interest Rate
If rates jump 2 percentage points, what changes tomorrow morning for a business?


Interest rates impact
Financing Costs
Customer demand
FX / international sales
Hiring & inventory

Central Bank and monetary policies
●CB is an institution that manages the monetary policy of a country or monetary union
●Monetary policy affects monetary and financial conditions to accomplish its objectives, most often
price stability and low unemployment

Monetary Policy Tools
Interest Rates
Forward Guidance
Reserve Requirements

Transmission mechanism



Monetary policy impact on busines
Market rates → WACC goes up/down, capex hurdle rates shift.
Credit availability → banks tighten lending standards, covenants matter.
Asset prices → wealth effect (consumer), valuation/financing (firms).
FX channel → rate differentials move currency, hits exporters/importers.
Expectations → pricing power and wage negotiations change.

Terms and concepts
Yield Curve
Quantitative Theory of Money

Game Theory
Statistics primer
Finance- company valuation
Finance derivatives and accounting
Behavioral economics