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BA1: Fundamentals of
Business Economics
Course Book
For new syllabus assessments
from January 2017
First edition August 2016
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2
Introduction to the course
Contents
Welcome to BA1 Fundamentals of Business Economics 4
Exam Technique Overview 10
Syllabus Content
1 Organisations and stakeholders 13
2 Measuring returns to shareholders 29
3 Demand, supply and price 45
4 Price elasticity 65
5 Cost behaviour 83
6 Market failure 101
7 National income 119
8 The trade cycle 139
9 Index numbers 157
10 Government economic policy 175
11 International economics 191
12 International trade 207
13 Functions of the financial system 219
14 Commercial and Central banks 233
15 Financial mathematical techniques 245
16 Impact of interest & exchange rate changes on business performance 269
17 Data and information 281
18 Forecasting 301
Test your learning answers 331
Appendix A: Present Value Tables 341
Bibliography 345
Index 347
3
Welcome to BA1 Fundamentals of Business Economics
Description of the paper
This subject primarily covers the economic and operating context of business and
how the factors of competition, the behaviour of financial markets and government
economic policy can influence an organisation. It also deals with the information
available to assist management in evaluating and forecasting the behaviour of
consumers, markets and the economy in general.
The focus of this syllabus is on providing candidates with an understanding of the
areas of economic activity relevant to an organisation's decisions and, within this
context, the numerical techniques to support such decisions.
Syllabus Areas and their weighting
Weight Syllabus topic
25% A. Macroeconomic and Institutional
Context of Business
30% B. Microeconomic and Organisational
Context of Business
20% C. Informational Context of Business
25% D. Financial Context of Business
The Objective Test exam
Format Computer Based Assessment
Duration 2 hours
Number of Questions 60
Marking No partial marking – each question marked correct or
incorrect
All questions carry the same weighting (ie same marks)
Weighting As per Syllabus Areas
All component learning outcomes will be covered
Question Types Multiple Choice
Multiple Response
Number Entry
Drag and Drop
Hot spot
Item Sets
Booking availability On demand
Results Immediate
4
Introduction to the course
Verb Hierarchy
LEVEL LEARNING OBJECTIVE VERBS USED DEFINITION
3
APPLICATION Apply Put to practical use
How you are expected Calculate Ascertain or reckon mathematically
to apply your knowledge
Demonstrate Exhibit by practical means
Prepare Make or get ready for use
Reconcile Make or prove consistent/compatible
Solve Find an answer to/prove with certainty
Tabulate Arrange in a table
LEVEL LEARNING OBJECTIVE VERBS USED DEFINITION
2
COMPREHENSION Describe Communicate the key features of
What you are expected Distinguish Highlight the differences between
to understand
Explain Make clear or intelligible/state the meaning or purpose of
Identify Recognise, establish or select after consideration
Illustrate Use an example to describe or explain something
LEVEL LEARNING OBJECTIVE VERBS USED DEFINITION
1
KNOWLEDGE List Make a list of
What you are expected State Express, fully or clearly, the details/facts of
to know
Define Give the exact meaning of
5
Learning Outcomes
A. Macroeconomic and institutional context of business (25%)
On completion of their studies, students should be able to:
Lead Component Level
1. Explain the principal (a) Explain determination of macroeconomic 2
factors that affect the phenomena, including equilibrium
level of a country's national income, growth in national
national income and income, price inflation, unemployment,
the impact of changing and trade deficits and surpluses
economic growth rates
(b) Explain the stages of the trade cycle 2
and prices on business.
and the consequences of each stage for
the policy choices of government
(c) Explain the main principles of public 2
finance (i.e. deficit financing, forms of
taxation) and macroeconomic policy
(d) Describe the impacts on business of 2
potential policy responses of government,
to each stage of the trade cycle
(e) Calculate indices for price inflation and 3
national income growth using either
base or current weights and use indices
to deflate a series
2. Explain the factors (a) Explain the concept of the balance of 2
affecting the trade of a payments and its implications for
country with the rest of government policy
the World and its
(b) Identify the main elements of national 2
impact on business.
policy with respect to trade
(c) Explain the impacts of exchange rate 2
policies on business
3. Explain the influences (a) Explain the concept of globalisation and 2
on economic the consequences for businesses and
development of national economies
countries and the
(b) Explain the role of major institutions 2
effects of globalisation
promoting global trade and development
on business.
(c) Identify the impacts of economic and 2
institutional factors using the PESTEL
framework
6
Introduction to the course
B. Microeconomic and Organisational Context of Business (30%)
On completion of their studies, students should be able to:
Lead Component Level
1. Distinguish between the (a) Distinguish between the goals of profit 2
economic goals of seeking organisations, not-for-profit
various stakeholders organisations and governmental
and organisations. organisations
(b) Explain shareholder wealth, the 2
variables affecting shareholder wealth,
and its application in management
decision making
(c) Distinguish between the potential 2
objectives of management,
shareholders, and other stakeholders
and the effects of these on the
behaviour of the firm
2. Demonstrate the (a) Identify the equilibrium price in 2
determination of prices product or factor markets
by market forces and
(b) Calculate the price elasticity of 3
the impact of price
demand and the price elasticity of
changes on revenue
supply
from sales.
(c) Explain the determinants of the price 2
elasticities of demand and supply
(d) Calculate the effects of price elasticity 3
of demand on a firm's total revenue
curve
3. Explain the influence of (a) Identify the influence of costs on the 2
economic and social size and structure of the organisation
considerations on the
(b) Explain the sources of market failures 2
structure of the
and the policies available to deal with
organisation and the
them
regulation of markets.
7
C. Informational Context of Business (20%)
On completion of their studies, students should be able to:
Lead Component Level
1. Apply techniques to (a) Explain the difference between data 2
communicate business and information and the
data as information to characteristics of good information
business stakeholders.
(b) Identify relevant data from graphs, 2
charts and diagrams
2. Demonstrate the uses of (a) Describe the principal business 3
big data and analytics applications of big data and analytics
for understanding the
(b) Demonstrate the relationship between 3
business context.
data variables
(c) Demonstrate trends and patterns using 3
an appropriate technique
(d) Prepare a trend equation using either 3
graphical means or regression
analysis
(e) Identify the limitations of forecasting 2
models
D. The financial context of business (25%)
On completion of their studies, students should be able to:
Lead Component Level
1. Explain the functions of (a) Explain the role of various financial 2
the main financial assets, markets and institutions in
markets and institutions assisting organisations to manage
in facilitating commerce their liquidity position and to provide
and development. an economic return to providers of
liquidity
(b) Explain the role of commercial banks 2
in the process of credit creation and in
determining the structure of interest
rates and the roles of the 'central
bank' in ensuring liquidity
(c) Explain the role of the foreign 2
exchange market in facilitating trade
and in setting exchange rates
8
