Economic Principles for Business and Market Entry Log

L0: Economic Issues
ECON127 Economic Principles for Business and Markets
The Economic Problem
• Engaging with economics
• Individual’s aspect
• Higher education or having a job?
• Household
• Buy or rent a house?
• Nationwide
• Increase tax for fiscal balance or decrease tax for boosting consumption?
How to decide? Let’s approach to decision making in a SCIENTIFIC WAY!
The Economic Problem
• What is economics about?
• analysis of decision making by individuals, businesses, governments
• choices involving production and consumption
• the problem of scarcity: unlimited desire & limited resources
• the central question in economics: how to distribute limited resources?
• basic criteria: “best use of the limited resources” (efficiency)
• in production, how to allocate production factors to maximise outputs
• in consumption, which goods to buy to maximise satisfaction
• in a market, how demand adjusts supply and vice versa
Dividing Up The Subject
• To make a super delicious pizza
• about ingredients
• flour for dough, tomato for sauce, cheese for
toppings
• about the whole pizza
• shape, size, balance of toppings and sauce,
texture, etc.
• To understand our economy, we should
do the same analysis – individual entities’
behaviour (microeconomics) & collective
outcomes of individuals’ interaction
(macroeconomics)
Dividing Up The Subject
• Microeconomic issues
• choices:
• what good and services & how much to produce
• How to produce
• for whom to produce
• the opportunity cost:
• what you give up in order to get something
• rational decision making
• the most satisfactory option among alternatives will be chosen
• weighing up marginal costs and marginal benefits
“marginal” in economics means “additional” or “extra”
Dividing up the Subject
• Macroeconomic issues
• growth
• unemployment
• inflation
• balance of trade deficits
• cyclical fluctuations
Modelling Economic Relationships
• Simplification of reality to show clearly how things are related
• Modelling economic relationships
• the importance of assumptions
• simplification: ceteris paribus assumption
• The production possibility (PP) curve
• what the curve shows
A production possibility curve
8
Units of food (millions)
7
6
Units of food Units of clothing
(millions)
(millions)
5
4
8
7
6
5
4
3
2
1
0
3
2
1
0.0
2.2
4.0
5.0
5.6
6.0
6.4
6.7
7.0
0
0
1
2
3
4
5
Units of clothing (millions)
6
7
8
A production possibility curve
8
a
Units of food (millions)
7
6
5
Units of food Units of clothing
(millions)
(millions)
4
a
8
7
6
5
4
3
2
1
0
3
2
1
0.0
2.2
4.0
5.0
5.6
6.0
6.4
6.7
7.0
0
0
1
2
3
4
5
Units of clothing (millions)
6
7
8
A production possibility curve
8
b
Units of food (millions)
7
6
Units of food Units of clothing
(millions)
(millions)
5
4
8
7
6
5
4
3
2
1
0
b
3
2
1
0.0
2.2
4.0
5.0
5.6
6.0
6.4
6.7
7.0
0
0
1
2
3
4
5
Units of clothing (millions)
6
7
8
A production possibility curve
8
Units of food (millions)
7
c
6
Units of food Units of clothing
(millions)
(millions)
5
4
8
7
6
5
4
3
2
1
0
c
3
2
1
0.0
2.2
4.0
5.0
5.6
6.0
6.4
6.7
7.0
0
0
1
2
3
4
5
Units of clothing (millions)
6
7
8
Modelling Economic Relationships
• The production possibility (PP) curve
• what the curve shows
 microeconomics and the PP curve:
 choices and opportunity cost
 increasing opportunity cost
Increasing opportunity costs
8
Units of food (millions)
7
x
6
1
5
y
1
2
4
z
3
1
2
1
0
0
1
2
3
4
5
Units of clothing (millions)
6
7
8
Modelling Economic Relationships
• The production possibility (PP) curve
• what the curve shows
• microeconomics and the PP curve:
• choices and opportunity cost
• increasing opportunity cost
 macroeconomics and the PP curve:
 production within the curve
Making a fuller use of resources
x
Production inside
the production
possibility curve
y
v
PP
O
Clothing
Modelling Economic Relationships
• The production possibility (PP) curve
• what the curve shows
• microeconomics and the PP curve:
• choices and opportunity cost
• increasing opportunity cost
• macroeconomics and the PP curve:
• production within the curve
• shifts in the curve
Growth in potential output
Growth in potential output shown by
outward shift in the PP curve.
Now
PP1
O
Clothing
Growth in potential output
5 years’ time
Now
PP1
O
Clothing
PP2
Modelling Economic Relationships
• The circular flow of income
• firms and households
The circular flow of goods and incomes
Firms
Households
Modelling Economic Relationships
• The circular flow of income
• firms and households
• goods markets
• real flows: goods and services
The circular flow of goods and incomes
Goods and services
Modelling Economic Relationships
• The circular flow of income
• firms and households
• goods markets
• real flows: goods and services
• money flows: consumer expenditure
The circular flow of goods and incomes
Goods and services
£
Consumer
expenditure
Modelling Economic Relationships
• The circular flow of income
• firms and households
• goods markets
• real flows: goods and services
• money flows: consumer expenditure
 factor markets
 real flows: services of labour and other factors
 money flows: wages and rent
The circular flow of goods and incomes
Goods and services
£
Consumer
expenditure
Wages, rent,
dividends, etc.
£
Services of factors of production (labour, etc.)
The price mechanism:
the effect of a rise in demand
Goods Market
Dg
shortage
(Dg > Sg)
Sg
Pg
Dg
until Dg = Sg
Factor Market
Sg
Df
shortage
(Df > Sf)
Pf
Sf
until Df = Sf
Df 
•
In this week’s lecture in ECON127 Economic Principles for Business and
Markets, Dr Eunyoung Moon tried to teach us about Economic Issues. Firstly,
we were reviewed the basics of the economy, what economics is about, its types
and composition. After that, we discussed economic issues in greater detail
through her obvious systematic delivery. It was a pleasure to get an
understanding of the different types of economies and to know which area of the
economy we would be exploring. Dr Eunyoung Moon guided us through a set of
PowerPoint slides she created, and she assessed our learning outcome through
the class activities and exercises. This learning activity was taken from a lecture.
As a preparation for the lecture, I read the essentials of economics book As a
result I gained a great deal of information. During the lecture, I was paying
attention while at the same time taking notes, it helps me to focus on and
understand economic issues and how they affect the world more effectively. After
the lecture, I compared my notes with my classmates and picked up some
important information, such as a model of economic relationships. Through this
week, I gained a great deal of valuable information about the economic issue,
which will be beneficial to me both now and in the future. A study of economics in
general is a perfect combination of numbers and words, calculations and
interpretations, problems and essays, both art and science are involved in
it. Accordingly,I will be able to earn higher marks in this module if I understand
the lecture. Furthermore, the course will prepare me for my future business
career’s mathematical, analytical, and problem-solving skills. Last but not least,
economics offers me a wide range of career options, including financial risk
analysis, data analyst, financial planner, accountant etc
Semester 1, 2022/23
ULMS151 – LECTURE 2
HISTORICAL APPROACHES TO OB
Dr Greg Fetzer
6 October 2022
OBJECTIVES
• Appreciate the historical stages that led to the
dawn of organisational behaviour (OB)
• Understand key schools of thought that
influenced (& continue to influence) employees
and employers
• Evaluate the pros and cons of the different
schools of thought
2
HOW DO THESE ORGANISATIONS DIFFER?
• Hairdresser salon
• Local supermarket
• National supermarket chain
• International bank
• Government department
3
CLASSIC VIEWS BUREAUCRACY
Max Weber’s “ideal
bureaucracy”
4

5
ASPECTS OF BUREAUCRACY (1)
1) Structure & Hierarchy
Maintaining control – span of control
with management
Layers of management
6
ASPECTS OF BUREAUCRACY (2)
2) Standardisation – Rules & Procedures
Governing behaviour in the organisation –
schedules, pay, appraisals promotions, job
descriptions, recruitment & selection
7

8
ASPECTS OF BUREAUCRACY (2)
2) Standardisation – Rules & Procedures
Governing behaviour in the organisation – schedules, pay,
appraisals promotions, job descriptions, recruitment &
selection
Managers’ discretion?
9
ASPECTS OF BUREAUCRACY (2)
2) Standardisation – Rules & Procedures
Governing behaviour in the organisation – schedules, pay,
appraisals promotions, job descriptions, recruitment &
selection
Managers’ discretion? Both beneficial and detrimental
10
ASPECTS OF BUREAUCRACY (3)
3) Records & Paperwork
a. To fulfil point #2 – all procedures are standardised through
formal records and paperwork
11
ASPECTS OF BUREAUCRACY (3)
3) Records & Paperwork
a. To fulfil point #2 – all procedures are standardised through
formal records and paperwork

12
BUREAUCRACY – SUMMARY
Impersonality
Hierarchy
Specialisation
Appointed officials
Remuneration
Full time
Career
Private/public split
Formal rules
13
CRITICAL EVALUATION
Pros
Cons
Impartial treatment
Ethical considerations?
Maintains order
Overly rigid (“red tape”)
Clarity—rules &
responsibilities
Human consequences—
“iron cage”
14
SCIENTIFIC MANAGEMENT
INTRODUCTION TO SCIENTIFIC MANAGEMENT
https://www.youtube.com/watch?v=ssazkZnMkpc
16
SCIENTIFIC MANAGEMENT – F.W. TAYLOR
Context: Antagonism between management and workers due
to:
1. The fallacious belief of the workers that any increase in
output would inevitably result in layoffs and unemployment.
2. Defective systems of management made it necessary for
workers to restrict output in order to protect their own
interests.
3. Inefficient, rule-of-thumb effort wasting work methods Soldiering.
17
PRINCIPLES OF SCIENTIFIC MANAGEMENT
Division of labour – work is broken down into small, repetitive
actions that are analysed scientifically
The scientific selection of workers so that each worker would be
given responsibility for the task for which he or she was best
suited.
Work is divided between management & workers, with
management taking responsibility for the design and planning of
work
Cooperation between management and labour.
18
FORDISM – HENRY FORD
Applied principles of scientific management
Advanced them by creating the ‘moving assembly line’
19
SCIENTIFIC MANAGEMENT TODAY

20
CRITICAL EVALUATION
Pros
Cons
First scientific approach to work
Surplus value (Marx)
Introduces important ideas like
reward-based pay
Leaves workers worse off—deskilling
Assumes rational economic motivations
Still applied in many orgs today
(e.g. Amazon, McDonald’s, call
centres)
Neglects the subjective/human side of
work
21
CONSEQUENCES OF SCIENTIFIC MANAGEMENT
Alienation (Marx, 1981)
1) Powerlessness: Loss of control over conditions of work, work processes, pace
and methods
2) Meaninglessness: Loss of significance of work activities
3) Isolation: Loss of sense of membership of the work community
4) Self estrangement: Loss of personal identity, of sense of work as a central
life interest
22
HUMAN RELATIONS MOVEMENT

24
HUMAN RELATIONS MOVEMENT – ELTON MAYO
1. Illumination studies
• Vary light level to establish “best” conditions
2. Relay Assembly Test Room
• Vary rest periods, refreshments, and wage output
3. Interviewing programme
• Structured inquiry into work activity
4. Bank Wiring Observation Room
• Role of the group in determining output
25
HUMAN RELATIONS – ILLUMINATION STUDIES
Control group – same light conditions
Experimental group – altering light conditions
Results: Productivity levels increased regardless of the
light conditions – Why?
Hawthorne Effect!
26
RELAY ASSEMBLY EXPERIMENTS
a) Grouped 6 highly skilled women to assemble
telephones
b) Varied rest periods, refreshments, and wage outputs
c) Measured productivity
Results: Productivity increased regardless!
27
RELAY ASSEMBLY EXPERIMENTS – RESULTS
a) Output more affected by social relations than wage incentives and physical
conditions
b) Production rose because of a change in attitude towards work and work
teams which had stability and purpose.
c) Sense of belonging
28
Researchers interested in how groups
behave
A group of men were sat in a room and
given a target of producing 7,200
units/day – to which a bonus is paid
Their behaviour and output was
observed
BANK WIRING EXPERIMENT
Results: Productivity remained at what
workers believed was a day’s work – ~
6000 units
29
BANK WIRING EXPERIMENT – RESULTS
a) Members were skeptical of the bonus schemes – thought they would lead to
lay offs
b) They were not lazy workers and managers were not nasty… so what was
the reason?
c) The importance of group norms!
d) Group norms are implicit, unwritten rules that guide behavior and form the
core of group membership
e) If they are violated, people are generally ostracized from the group –
forms the basis of social identity theory (Tajfel & Turner, 1986)
30
IMPLICATIONS OF THE HUMAN RELATIONS
MOVEMENT
a) Shifted focus from pure wage processes to understanding and satisfying
employee needs
b) Informal organisation as important as the formal organisation
c) Informal group goals may be more important than formal group goals
d) Human beings are social animals
e) Workers perform better if given the opportunity to participate
DAWN OF OB!
31
CRITICAL EVALUATION
a) Major contributions to OB,
BUT
a) Need to question methods of running these experiments – the selection of
workers, small sample size, researchers’ prior beliefs and assumptions
b) The context: studies took place in the 1930’s whereby workers were
massively afraid of losing their jobs – they may have operated under the
belief that increasing productivity meant sacking jobs
c) The psychological control of the worker?
32
THE CONTEMPORARY APPROACH
Social/
cultural
Political
Economic
ORGANISATION
INPUTS
Resources &
Raw
materials
OUTPUTS
Products &
services
Processes
Technological
Legal
33
THIS WEEK’S READING
King & Lawley textbook:
❖ Ch. 2: Organizational structure, design, and bureaucracy
❖ Ch. 3: Rational work design & Ch. 5: Discovering the social
organization – use this lecture as a guide for what to read
For next week:
❖ Individual Differences
❖ Ch. 8: Personality and individual differences & additional readings
(see Reading List on Canvas)
34
OPTIONAL READING MATERIAL
Hirst, G., Van Knippenberg, D., Chen, C.H. and Sacramento, C.A., 2011. How does
bureaucracy impact individual creativity? A cross-level investigation of team
contextual influences on goal orientation–creativity relationships. Academy of
Management Journal, 54(3), pp.624-641.
Silverthorne, C., 2004. The impact of organizational culture and person-organization
fit on organizational commitment and job satisfaction in Taiwan. Leadership &
Organization Development Journal, 25(7), pp.592-599.
Snizek, W.E. and Bullard, J.H., 1983. Perception of bureaucracy and changing job
satisfaction: A longitudinal analysis. Organizational behavior and human
performance, 32(2), pp.275-287.
35
AI, the Labour Market, and
You
MKIB116 Week 4 Lecture
2022
Goal of Today’s Session
AI stands for Artificial Intelligence, otherwise known as machine
learning.
This lecture should get you thinking about the predicted AI revolution
and its possible impact on the labour market, and your future.
Overview of Lecture
Short lecture: to briefly overview the evidence that suggests that AI will
disrupt the labour market and is likely to affect the types of well-paid
careers you are likely planning to have.
To get you thinking about who the likely winners and losers from the AI
revolution will be.
Exercise to think about how to future-proof your income against AI.
I’ve planned a group exercise in the middle of the lecture.
Technological Unemployment
Early examples of technological unemployment involved substituting
machines for repetitive physical labour (think tractors on farms).
More recently, while computers have come to replace humans in many
cognitive tasks, they have created many jobs for people with
complementary skills.
The question is whether AI will have more or less the same effect or
will be a total game changer.
Historical Precedent
AI’s Likely Impact on the Income Distribution
Historically, technological unemployment mainly affected low-skill
(farm labourers replaced by tractors) and medium-skill workers (bank
clerks replaced by ATMs).
AI threatens to replace some highly paid, high skill occupations,
including medical diagnosis and translation.
It is also likely to change the balance of power between labour and
capital, increasing the incomes of the owners of capital.
In most industrialised country’s the share of national income that goes
to labour (workers of all types) has fallen steadily in recent decades.
More of the pie has gone to the owners of capital.
There is admitted some overlap between these two groups, but not as
much as some pretend.
Gini coefficient has also gone up.
One view is that while AI may increase the incomes of a small set of
worker (people who can program or supervise AI), the net effect will be
to accelerate the shrinkage in labour’s share of GDP, at least in those
countries in which the governments adopt a laissez-faire approach.
Some researchers who accept this prediction have come to support
Universal Basic Income as a safety-net to compensate workers.
Universal Basic Income (UBI)= the basic idea is that every citizen or
legal resident in the country would be paid monthly stipend.
The stipend would be funded by taxes on the winners (owners of
capital and high-earning earners).
The advantage of this system is that it would be simple to administer.
Precedent: Alaska Permanent Fund.
In general, people on the left of the political spectrum seem to be most
inclined to believe that AI will result in massive job losses throughout
the economy along with social disruption.
Let’s watch a short video that presents this point of view.

Thinking Probabilistically
How likely is this nightmare scenario?
If the nightmare scenario is 100% certain to come about, there is little
that you as students can really do to prepare for it.
Similarly, if AI is totally over-rated and won’t result in any job losses at
all, then you don’t need to do anything.
The middle-range scenarios force you to plan.
Which Types of Jobs Are Most Susceptible to
Computerisation?
Frey and Osborne (2013) estimated the probability of computerisation
for 702 identified occupations in the US labour market using the
Standard Occupational Classification (SOC).
They estimated that 47 percent of total US employment is at risk.
Economists believe that jobs that involve driving motor vehicles are
most susceptible to automation in the immediate future.
Terms of Debate
Frey and Osborne predicted that 47% of all US jobs would be automated by 2030.
PwC came up with a similar figure of 30%.
Arntz, Gregory and Zierahn predict 9% and the main impact of AI will be to
automate parts of jobs not whole jobs.
They also note that in retail, the percentage of a worker’s time that is spent on
persuasion rather than on computerisable tasks varies dramatically between subsector.
McKinsey Global Institute came to similar conclusions.
Manufacturing
Has the “robot jobs apocalypse” really happened yet?
Data from the US manufacturing sector suggests that AI/robotics initially produced
a wave of job losses, but then the same companies began hiring more people.
Why would robots be bad for jobs in the early years but good for jobs later on?
Robots/AI are good at mass producing things cheaply, but consumers want a
degree of customisation done by humans.
Collaborative robots: robot makes most of the product, human puts the
personalised finishing touches on.
Banking
AI is increasingly used to make decisions about who gets a loan.
It does result in some job losses in banking.
Intriguingly, it results in banks taking on more risk– giving loans to
people who previously would not have qualified.
Second-order effects are worth thinking about.
Care Home Robots
In Japan, robots with AI are increasingly used to care for the elderly.
Now in use in 1,000 nursing homes.
The robots had no significant impact on nursing homes’ total workforce
but potentially increased demand for irregular caregivers on more
flexible (zero hours type) contracts.
Two New Papers on the Subject
Acemoglu, D., & Restrepo, P. (2020). Robots and jobs: Evidence from US
labor markets. Journal of Political Economy, 128(6), 2188-2244.
Chung, J. H., & Lee, Y. S. (2020). The Evolving Impact of Robots on Jobs.
Stanford University Working Paper.
AI Advantages and Limitations
AI is ideally suited for replacing human labour in cognitive tasks that involve
precision and accuracy, swiftness, and speed, traits that humans are poor at.
Early robotics was excellent for automating tasks involve regular and hard
objects, terrible for automating tasks involving irregular and soft objects.
In general traditionally male tasks are more likely be automated than are
traditional female tasks.
The types of tasks that foreseeable AI is unlikely to replace include those that
involve soft skills, physical touch, and handling people’s emotions.
Two Types of Retail Salespersons
Which Job is More Vulnerable to Computerisation?
Consider the Following Graduates
BA in Child Psychology
BSc in Accountancy
Whose career is more likely to be threatened by automation?
What can the more threatened graduate do to future-proof
him/herself?
Handling People’s Emotions
Let’s assume that AI will increase the demand in the labour market for
people who are skilled at handling the emotions of other people.
What can you do during your time at university to increase your level of
skill in this area?
What you can do during university to signal to employers you have such
skills?
How can extra-curriculars help?
Employer Selection
Employers have a lot of choice about which graduates they employ.
At the same time, YOU can have some freedom to select your
employer, target your employer.
Existing research suggests to me that you should take firms’ AI
capabilities into account in deciding which companies you want to
work for.
“Prediction Machines: The Simple Economics of Artificial Intelligence” Ajay
Agrawal, Rotman Business School, University of Toronto.
Agrawal argues that AI will strengthen the winner-take-all dynamic amongst
firms.
He uses the example of competing firms, each with an AI for medical
diagnostics.
It would be very risky for a hospital CEO to buy the second-best, cheaper AI
used to detecting cancer.
What that means is that we would expect that in industries where the
ability to predict is crucial, a single firm will come to dominate each
area, just as Google has come to dominate search in the Western
world.
What that means is that you want to be working for the companies that
have the strongest capacity in AI, not the second strongest.
Actionable take home lesson from all of this:
Invest time in learning more about AI.
Follow leading academic and non-academic experts on AI.
Set up a Financial Times alert for all articles about AI.
Read all articles in The Economist about AI.
Benefits of Learning About AI
AI will be increasingly important to the individuals on the other side of
the table at your job interviews.
Being able to demonstrate some knowledge of AI and its application in
their industry will, I think, be increasingly important.
We now are moving into a more interactive part of the session that
involves using the Computerisation document we made available to
you on Canvas.
You will need a partner for the next exercise.
Diagnostic of Job Susceptibility to Computerisation Exercise
Please do this with a partner. Take 10 minutes to complete the form
and then discuss your results with your partner.
We will then regroup to discuss it.
Before we do this, I am going to pretend I am doing this same exercise
on my father back in 1994.
Job Title
Canadian Civil Servant in 1994
Role Tasks
Task
Rough Percentage of Time Devoted to Task
Listening to municipal officials who dislike the government’s policy
25%
and pretending to care about their opinions
Driving around to meet said municipal officials
Filling expense forms to claim back costs of petrol, hotel rooms
25%
5%
Meeting with senior civil servant department to sweet talk him
into changing his mind with a view to less driving
10%
Translating letters from English to French using a dictionary
5%
Listening to senior civil servant in department complaining about
the Minister
Writing letters
Putting the letters in envelopes
Gossiping to try to learn when the Minister is getting fired
10%
Which of these tasks do you think are susceptible to
automation/computerisation?
How much of this job role could be automated?
6%
2%
12%
Putting letters in envelopes (2%); Driving, but
not sitting in car (25%); Translating letters
(5%)
32%, provided sitting in car could be turned
into productive time
Job Title
Canadian Civil Servant in 1994
Role Tasks
Task
Rough Percentage of Time Devoted to Task
Listening to municipal officials who dislike the government’s policy
25%
and pretending to care about their opinions
Driving around to meet said municipal officials
Filling expense forms to claim back costs of petrol, hotel rooms
25%
5%
Meeting with senior civil servant department to sweet talk him
into changing his mind with a view to less driving
10%
Translating letters from English to French using a dictionary
5%
Listening to senior civil servant in department complaining about
the Minister
Writing letters
Putting the letters in envelopes
Gossiping to try to learn when the Minister is getting fired
10%
Which of these tasks do you think are susceptible to
automation/computerisation?
How much of this job role could be automated?
6%
2%
12%
Putting letters in envelopes (2%); Driving, but
not sitting in car (25%); Translating letters
(5%)
32%, provided sitting in car could be turned
into productive time
Semester 1, 2022/23
ULMS151 LECTURE 3
INDIVIDUAL DIFFERENCES
13 Oct
WEEK’S LEARNING GOALS
• Consider the nature of differences between individuals and the implications this has
in organisations
• Explore individual differences in terms of skills and abilities
• Understand the concept of personality and its usefulness in organisations
• Explore the perceptual process
2
INDIVIDUAL DIFFERENCES
The way in which factors such as skills, abilities, demographic qualities,
personality factors, perceptions, attitudes, values, and ethics differ from on
individual to another.
3
GENETICS
AND
OR
ENVIRONMENT
4
INDIVIDUAL DIFFERENCES: INTERACTIONIST VIEW
Heredity
Individual
characteristics:
Abilities
Skills
Personality traits
Values
BEHAVIOUR
Environment
B= f (P,E)
5
ABILITIES
Natural talents to do something mental or physical
Abilities
Example
Cognitive
Intelligence, verbal, numeric, spatial,
deductive, perceptive
Physical
Strength, coordination, equilibrium,
flexibility
6
INTELLIGENCE
“A very general mental capability that, among other things, involves the ability to
reason, plan, solve problems, think abstractly, comprehend complex ideas, learn
quickly and learn from experience.“ (Gottfredson, 1997)
• Number aptitude, verbal comprehension, perceptual speed, inductive reasoning,
deductive reasoning, spatial visualisation, memory
• IQ tests: M=100, SD=15
• A good predictor of work performance (level at work attained, income) (Schmidt &
Hunter, 2004)
7
8
9
SKILLS
Acquired talents that a person develops related to specific tasks
Skills
Description
Technical
Knowledge of job processes, methods, tools, and
techniques
Interpersonal
Knowledge of interpersonal relationships including
communication, conflict management, negotiation, and
team building
Conceptual
Knowledge of problem solving, logical thinking, decision
making, creativity, and reasoning in general 10
SKILL-JOB FIT
How can we assess if skills fit with a job?
11
SKILL-JOB FIT
o Scan the QR code here
oOr go to https://PollEv.com/gregfetzer967
o Write a nickname
12
13
14
15
ASSESSING FIT
16
ASSESSING TECHNICAL SKILLS
17
QUESTIONS?
18
PERSONALITY
Personality refers to individual differences in characteristic patterns of
thinking, feeling, and behaving.
Personality is a relatively stable set of characteristics that influences an individual’s
behavior.
The study of personality focuses on two broad areas:
1. Understanding personality characteristics, such as conscientiousness or
extraversion.
2. Understanding how the various parts of a person come together as a whole.
19
PERSONALITY EXAMPLES: SIMON COWELL

20
PERSONALITY EXAMPLES: SHELDON

21
PERSONALITY EXAMPLES: NEWMAN

22
BIG FIVE (OCEAN) SCALE
Openness to
Experience
(MCRAE AND COSTA, 1990, 1996)
• Openness to experience
Neuroticism /
Emotional
stability
• Conscientiousness
• Extraversion/introversion
Big
Five
Conscientiousness
• Agreeableness
• Neuroticism (emotional stability)
Agreeableness
Extraversion
23
BIG FIVE
(Costa & McCrae (1997); Norman (1963); Barrick & Mount (1991)
Personality Dimensions
Description: Degree to which a person is…
Openness to Experience
Imaginative, broad-minded, curious, and seeks
new experiences
Conscientiousness
Dependable, hard-working, responsible,
organized, and forward-looking (plans ahead)
Extraversion
Sociable, talkative, assertive, active, and
ambitious
Agreeableness
Courteous, likable, good-natured, cooperative,
warm, and flexible
Neuroticism (Or emotional stability)
Anxious, depressed, angry, insecure
24
PERSONALITY: POSITIVE & NEGATIVE SIDES OF
THE BIG 5
Big 5
Openness
Conscientiousness
Extraversion
+
–
• Increased learning, creativity
• Easily bored when doing routine
• More adaptable to change
tasks
• Disciplined
• Don’t adapt easily to change
• Live longer
• Learning curve is longer
• Emotionally expressive
• Impulsive
• Risky behaviours
Agreeableness
• Better liked
• Poor negotiators
• Rule abiding
• Avoid conflict
• Less likely to engage in deviant behavior
Emotional stability
(neuroticism)
• Less health complaints
• Can take unnecessary risks
• Less hyper vigilant
• Less negative thinking
25
PERSONALITY TRAITS AND WORK BEHAVIOUR
Openness to Experience
Agreeableness
• More creative
• More likely to be chosen as friends/partners
• More likely to be effective leaders
• More compliant and rule obeying
• More comfortable with ambiguity and change
• Better in interpersonal jobs
• Less likely to engage in organisational deviance
Extraversion
• Higher job and life satisfaction
Neuroticism (emotional stability)
• More likely to emerge as leaders
• Job and life Satisfaction
• Perform better in jobs that require social
interaction
Conscientiousness
• Have more friends and social events
• Better performance
26
PERSONALITY TRAITS AND PERFORMANCE
The best predictor: Conscientiousness
Sackett, P. R., & Walmsley, P. T. (2014). Which personality attributes are most important in the workplace? Perspectives on Psychological Science, 9(5), 538-551.
Hurtz, G. M., & Donovan, J. J. (2000). Personality and job performance: the Big Five revisited. Journal of Applied Psychology, 85(6), 869.
27
PERSONALITY: SUMMARY BIG 5 AND WORK
BEHAVIOUR
Criteria
Big 5
Performance
Conscientiousness
Extraversion
Openness
Happiness/Satisfaction
Emotional stability
Extraversion
Agreeableness
Leadership
Extraversion
Conscientiousness
Openness
28
PERSONALITY: RECRUITMENT AND SELECTION
Low predictive validity
•30-40% (Pilbeam and Corbridge, 2010)
•15% if self-administered (Reilly & Chao, 1982)
•Better results with customized, job-specific tests (Morgeson et al, 2007)
Why?
✓ Candidates fake answers
✓ Bias in language of tests
✓ Traits not necessarily independent and
measurable
✓ Issues with the recruiter
29
PERSONALITY ACROSS TIME
• While some aspects of peoples’ personality do change, some aspects remain very similar
over time
• As people get older there is an increase in extraversion (social dominance) and
conscientiousness and emotional stability (especially between ages of 20 and 40)
• People increase on extraversion (social vitality) and openness in adolescence, but then
decrease afterwards
• Agreeableness increases in old age
(Roberts, Walton, & Viechtbauer, 2006)
30
PERSONALITY: THE DARK TRIAD
Machiavellianism
Psychopathy
• Pragmatic, manipulative
• Maintains personal distance
• Believes that ends justify means
+ Deviant behaviours
– Performance
Good negotiators
(see LeBreton et al. 2018)
Narcissism
• Lack of concern for both other
people and social norms
• Impulsivity, lack of guilt or remorse
• Emotionally shallow
+ Deviant behaviours
Rated as worse leaders
but…common trait in successful
leaders
+ Deviant behaviours
– Performance
to be the centre of attention
Charismatic, impression •• Likes
Grandiose sense of self importance; sense of entitlement
management
• Treat others as inferior, tend to be selfish and exploitative
31
QUESTIONS?
32
PERCEPTION
34
35
PERCEPTUAL PROCESS
Stimuli
Exposure
Attention
Interpretation
Response
Interpretation
* Perceptual errors
* Attributions
36
ATTENTION EXAMPLE

37
COMMON PERCEPTUAL BIASES
Biases
Description
Fundamental Attribution Error
Tendency to underestimate situational factors and overestimate personal factors
when making attributions about others’ actions
Stereotypes
A generalization about an individual based to the group to which the person
belongs
Halo or horn effect
Use of own characteristic to create a positive or negative impression that dominates
other information
Similar-to-me effect
Developing a liking for a person that we perceive as similar to us and disliking those
who are different
38
39
MANAGING BIAS
Recognise
Develop
Awareness
Reminders and
Support
Frequent contact
and interaction
40
SUMMARY
• People are fundamentally the same but we also have many differences
• “Who we are” emerges both from our biology and our experiences
• Some individual differences are systematically and consistently associated with certain
work outcomes
• Some individual differences are more stable than others
• Awareness of who we are and how we tend to perceive others can help to overcome
biases and inaccurate judgements
41
SELF STUDY FOR THIS WEEK
Reading
• King & Lawley textbook Ch. 8: Individual differences
• Optional reading: Goodbye to MBTI by Adam Grant
Prepare for your first seminar
• Read the case study, Trip to McDonald’s
• Find more details on Canvas
For next week: Motivation
42
QUESTIONS?
43
Segmentation,
Targeting &
Positioning
TOPIC 5
FUNDAMENTALS OF MARKETING
After the session, you will be
able to explain & apply the
concepts of:
Segmentation
Targeting
Positioning
Perceptual Mapping
This lecture is in 2 parts
Part 1 comprises segmentation & targeting – we will cover
these in the live lecture today
Part 2 comprises positioning (and perceptual mapping) which
is covered in the podcast on canvas
 Market segmentation is the opposite of
mass marketing
 Market segmentation is vital for company
success
 Dividing the market into reasonable
segments is the starting point
 Next decide on the segment(s) to target
 Position the brand in the mind of the
customer and relation to the competition
 Develop strategies to serve the identified
target
Segmentation Defined
‘The art of discerning and
defining meaningful differences
between groups of customers to
form the foundations of a more
focused marketing effort’
‘The top down process of grouping customers
in markets with some similarities into smaller,
more homogenous segments’ (Kotler 1996)
Segmentation
Segmentation
Segmentation

Concerned with the individuals, institutions, or groups of
individuals or institutions that have similar needs that can be
met by a particular product/service offering
 The goal is to identify specific customer needs, then
design a marketing program that can satisfy those needs.
 The firm must have a comprehensive understanding of its
current and potential customers, including their
motivations, behaviors, needs, and wants.

Segmentation is critical to the success of most firms and has
helped improve our standard of living.
Socio- Demographics
Gender
Age &
Cohorts
Religion
&/or
Ethnicity
Family size/
Family life
cycle stage
Income,
Education,
Occupation
Social
class/status
A model of household life cycles
Based Gilly & Enis, 1982
Geographics
 Location
 Topography
 Geodemographic

E.g. ACORN
http://acorn.caci.co.uk/what-is-acorn
Segmentation on Geography
Psychographics
Values
Personality
Lifestyles (AIO)
VALS (US)
Benefits of psychographic profiling
A segmentation
model of senior
UK consumers
(Sudbury-Riley, 2009)
Solitary
Sceptics
Bargain Hunting
Belongers
Positive
Pioneers
Self-Assured Sociables
Cautious Comfortables
BEHAVIOURAL SEGMENTATION
 Usage Rate
 Benefits sought
 Loyalty status
 Readiness to
 purchase

SEGMENTING BUSINESS MARKETS
Geographic
Demographic
(industry,
company size)
Benefits sought
or buying
process
Type of
organization
Organizational
characteristics
Personal and
psychological
characteristics
Relationship
intensity
segmentation trade-offs
Targeting: Deciding which segment(s) to serve
Targeting:
Deciding which
Targeting Options
Market
Concentration
• Focusing on a single market
segment and attempting to gain
maximum share in that segment
Multi-segment
Approach
• Attracting buyers in more than one
segment by offering a variety of
products/services that appeal to
different needs
Niche
Marketing
• Focuses marketing efforts on one
small, well-defined market
segment or niche that has a
unique, specific set of needs
Marketing mix
The market
Targeting: Undifferentiated Strategy
Marketing mix 2
Segment 2
Concentrated Strategy
Differentiated Strategy
Marketing mix 1
Segment 1
Marketing mix 2
Segment 2
Marketing mix 3
Segment 3
Viable segments must be:
Measurable
Actionable
Differentiable
Accessible
Substantial
Summary
How to segment our market is a key decision in
order to match our capabilities with our external
opportunities
We cannot be all things to all people, so a clear
targeting strategy is crucial
An effective positioning strategy is vial to
differentiate our brand in the marketplace, and is
probably the most important IMC decision – we
will cover this in the podcast
L6: Aggregate Demand and
Business Cycle
ECON127 Economic Principles for Business and Markets
Dr. Eunyoung Moon
Reading: Essentials of Economics, 8th ed. Ch. 9
Let’s consider economy as the whole system…
People wish to continue economic growth (a.k.a. prosperity)
– We need to measure the economy first and consider how
the economy expands.
People also wish the economy to be stable (to avoid negative
external impact on their life)
– In an economy, there are major entities that affect each other
and the goods&services and money flow between each entity.
To re-boot consumptions after the first lockdown, government
subsidised hospitality industry, known as “Eat out to help out”.
Q: What was the goal of this policy? Why the government need
to boost consumption? Why subsidy on consumption rather than
direct subsidy on restaurants?
Source https://www.theguardian.com/business/2020/nov/25/eat-out-to-help-out-venues-claimed-more-than-849m-through-scheme
Introduction to Macroeconomics
• Government macroeconomic policy
• objectives
• high economic growth
• stability – low unemployment, low inflation, stable exchange rate
• financial soundness – avoidance of balance of payments deficits, reduction of financiallydistressed sectors of the economy
• possible conflicts between objectives
• ex. inflation and unemployment are negatively related
Introduction to Macroeconomics
• In macroeconomics, we should see an economy in the ‘total’ or ‘whole’ or
‘systemic’ view
• Four major aspects:
• economic growth
• unemployment
• inflation
• financial system
Introduction to Macroeconomics
• In macroeconomics, we should see an economy in the ‘total’ or ‘whole’ or
‘systemic’ view
• Four major aspects:
• economic growth: fluctuation (business cycle) and long term trend
Annual economic growth rates
8
6
4
2
0
-2
-4
-6
1980
World
Eurozone
UK
USA
Japan
Australia
1985
#REF!
1990
1995
2000
2005
2010
2015
Notes: 2017 to 2020 based on forecasts; eurozone figures are the weighted average of the 19 countries (as of Jan 2015) using the euro.
Source: Based on data in IMF World Economic Outlook Database, IMF (April 2018)
2020
Output paths, 1980 to 2020
220
World
Eurozone
UK
USA
Japan
Australia
Zero
200
180
160
140
120
100
80
60
40
1980
1985
1990
1995
2000
2005
2010
2015
Notes: 2017 to 2020 based on forecasts; eurozone figures are the weighted average of the 19 countries (as of Jan 2015) using the euro.
Source: Based on data in IMF World Economic Outlook Database, IMF (April 2018)
2020
Introduction to Macroeconomics
• In macroeconomics, we should see an economy in the ‘total’ or ‘whole’ or
‘systemic’ view
• Four major aspects:
• economic growth: fluctuation (business cycle) and long term trend
• unemployment: those of working age who are without work but who are willing and
available for work at current wage rates
Standardised unemployment rates
14
Eurozone
Germany
UK
USA
Japan
Australia
Uenmployment (percentage of workforce)
12
10
8
6
4
2
0
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
Notes: Data from 2018 based on forecasts; eurozone figures are the weighted average of the 19 countries (as of Jan 2015) using the euro; figures for
Germany based on West Germany only up to 1991.
Source: Based on data in AMECO Database, European Commission, DGECFIN
Introduction to Macroeconomics
• In macroeconomics, we should see an economy in the ‘total’ or ‘whole’ or
‘systemic’ view
• Four major aspects:
• economic growth: fluctuation (business cycle) and long term trend
• unemployment: those of working age who are without work but who are willing and
available for work at current wage rates
• inflation: % increase in price index (e.g. CPI or RPI)
Inflation rates
24
22
Eurozone
Germany
UK
USA
Japan
Australia
#REF!
20
16
14
12
10
8
6
4
2
Annual rate of inflation (%)
18
0
-2
-4
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
Notes: Inflation rate is the annual percentage change in the consumer expenditure deflator; data from 2018 based on forecasts; eurozone figures are the
weighted average of the 19 countries (as of Jan 2015) using the euro.
Source: Based on data in AMECO Database, European Commission, DGECFIN
Introduction to Macroeconomics
• In macroeconomics, we should see an economy in the ‘total’ or ‘whole’ or
‘systemic’ view
• Four major aspects:
• economic growth: fluctuation (business cycle) and long term trend
• unemployment: those of working age who are without work but who are willing and
available for work at current wage rates
• inflation: % increase in price index (e.g. CPI or RPI)
• financial system, interest rate
Ecomomic Volatility and the Business Cycle
• Actual and potential growth
• actual and potential output and growth
• the output gap
• The hypothetical business cycle
• phases of the business cycle
1.
2.
3.
4.
the upturn
the expansion or boom
the peaking out
the slowdown or recession
The business cycle
Full capacity
output
Actual
output
O
Time
The business cycle
Full capacity
output
3
2
3
4
2
1
1
O
Time
4
Actual
output
Ecomomic Volatility and the Business Cycle
• Actual and potential growth
• actual and potential output and growth
• the output gap
• The hypothetical business cycle
• phases of the business cycle
• the upturn
• the expansion or boom
• the peaking out
• the slowdown or recession
• long-term output trend
The business cycle
Full capacity
output
Trend
output
Actual
output
O
Time
Ecomomic Volatility and the Business Cycle
• The business cycle in practice
• business cycles are irregular
• differences in the length of the phases
• differences in the magnitude of the phases
• Spending, output and the business cycle
• cycles caused by changes in aggregate demand
• AD = C + I + G + X − M
Ecomomic Volatility and the Business Cycle
• The business cycle in practice
• business cycles are irregular
• differences in the length of the phases
• differences in the magnitude of the phases
• Spending, output and the business cycle
• cycles caused by changes in aggregate demand
• AD = C + I + G + X − M
• cycles caused by changes in aggregate supply
• sometimes changes in technology, the regulatory environment or political shocks may cause cycles
The Circular Flow of Income
• The inner flow
The circular flow of income
Firms
Factor
payments
Consumption of
domestically
produced goods
and services (Cd)
Households
The circular flow of income
Factor
payments
Consumption of
domestically
produced goods
and services (Cd)
BANKS, etc
GOV.
ABROAD
The Circular Flow of Income
• Withdrawals: income flow From household
• net saving
• net taxes
• import expenditure
• Injections: income flow TO firm
• investment in domestically produced capital
• government purchases of domestically produced goods and services
• export expenditure
The circular flow of income
INJECTIONS
Export
expenditure (X)
Investment (I)
Factor
payments
Consumption of
domestically
produced goods
and services (Cd)
Government
expenditure (G)
BANKS, etc
Net
saving (S)
GOV.
ABROAD
Import
Net
expenditure (M)
taxes (T)
WITHDRAWALS
The Circular Flow of Income
• The relationship between injections and withdrawals
• the links between them
The Circular Flow of Income
• The relationship between injections and withdrawals
• the links between them
• planned injections may not equal planned withdrawals
• Equilibrium in the circular flow
• where W = J
• or where Y = E (where Y = Cd + W and E = Cd + J)
The circular flow of income
INJECTIONS
Export
expenditure (X)
Investment (I)
Factor
payments
Consumption of
domestically
produced goods
and services (Cd)
Government
expenditure (G)
BANKS, etc
Net
saving (S)
GOV.
ABROAD
Import
Net
expenditure (M)
taxes (T)
WITHDRAWALS
Simple Keynesian Model of National Income determination
• Simple Keynesian model
• production depends on aggregate demand (AD)
• fluctuations in AD are the reason for cyclical fluctuations
• government should stabilise the economy by managing AD
• Effect on national income of a change in injections and/or withdrawals
• W > J → Y → W until J = W
• J > W → Y → W until J = W
The circular flow of income
J=I+G+X
Incomes
Cd
W=S+T+M
Simple Keynesian Model of National Income determination
• The Keynesian diagram: the withdrawals and injections approach
• the withdrawals curve
Equilibrium national income: withdrawals equals injections
W, J
W
O
Y
Simple Keynesian Model of National Income determination
• The Keynesian diagram: the withdrawals and injections approach
• the withdrawals curve
• the injections curve
Equilibrium national income: withdrawals equals injections
W, J
W
J
O
Y
Simple Keynesian Model of National Income determination
• The Keynesian diagram: the withdrawals and injections approach
• the withdrawals curve
• the injections curve
• equilibrium
Equilibrium national income: withdrawals equals injections
W, J
Equilibrium national income
is where W = J.
O
W
x
J
Ye
Y
Equilibrium national income: withdrawals equals injections
W, J
If injections exceed withdrawals,
national income will rise.
W
a
x
J
Ye
Y
b
O
Y1
Equilibrium national income: withdrawals equals injections
W, J
If withdrawals exceed injections,
national income will fall.
W
c
a
x
d
J
Ye
Y2
Y
b
O
Y1
Simple Keynesian Model of National Income determination
• The Keynesian diagram: the withdrawals and injections approach
• the withdrawals curve
• the injections curve
• equilibrium
• The Keynesian diagram: the income and expenditure approach
• the 45° line
Equilibrium national income: real national income equals
aggregate expenditure
Cd, W, J
Y = Cd + W
Cd
45°
O
Y
Simple Keynesian Model of National Income determination
• The Keynesian diagram: the withdrawals and injections approach
• the withdrawals curve
• the injections curve
• equilibrium
• The Keynesian diagram: the income and expenditure approach
• the 45° line
• the aggregate expenditure curve (E)
Equilibrium national income: real national income equals
aggregate expenditure
Cd, W, J
Y = Cd + W
E = Cd + J
Cd
45°
O
Y
Simple Keynesian Model of National Income determination
• The Keynesian diagram: the withdrawals and injections approach
• the withdrawals curve
• the injections curve
• equilibrium
• The Keynesian diagram: the income and expenditure approach
• the 45° line
• the aggregate expenditure curve (E)
• equilibrium
Equilibrium national income: real national income equals
aggregate expenditure
Cd, W, J
Equilibrium national income is
where Y = E (and W = J).
z
Y = Cd + W
E = Cd + J
Cd
45°
O
Ye
Y
Equilibrium national income: real national income equals
aggregate expenditure
Cd, W, J
If expenditure is greater than
income, income will rise
z
Y = Cd + W
E = Cd + J
Cd
e
f
45°
O
Y1
Ye
Y
Equilibrium national income: real national income equals
aggregate expenditure
Cd, W, J
If income is greater than
expenditure, income will fall
g
h
Y = Cd + W
E = Cd + J
Cd
z
e
f
45°
O
Y1
Ye
Y2
Y
The Multiplier
• The multiplier: introduction
• the circular flow of income and effects of changes in injections
The circular flow of income
J=I+G+X
Incomes
Cd
W=S+T+M
The Multiplier
• The multiplier: introduction
• the circular flow of income and effects of changes in injections
• definition of the multiplier: Y/J
• Withdrawals and injections approach
• graphical analysis: shift in the J line
The multiplier: a shift in injections
W, J
Multiplier = Y /  J
= Y / W
= c − a/b − c
W
J2
J1
O
b
J
W = J
a
Ye1
Y
J2
c
J1
Ye2
Y
The Multiplier
• The multiplier: introduction
• the circular flow of income and effects of changes in injections
• definition of the multiplier: Y/J
• Withdrawals and injections approach
• graphical analysis: shift in the J line
• the formula : 1/mpw
or
: 1/(1 – mpcd)
The multiplier: a shift in injections
W, J
Multiplier = Y /  J
= Y / W
= c − a/b − c
= 1/mpw
W
J2
J1
O
b
J
W = J
a
Ye1
Y
J2
c
J1
Ye2
Y
The Multiplier
• The multiplier: introduction
• the circular flow of income and effects of changes in injections
• definition of the multiplier: Y/J
• Withdrawals and injections approach
• graphical analysis: shift in the J line
• the formula : 1/mpw
or
: 1/(1 – mpcd)
• Income and expenditure approach
• graphical analysis: shift in the E line
The multiplier: a shift in the expenditure function
E, W, J
Y
Multiplier = ΔY / ΔJ
= (c – a) / (b – a)
E2
E1
c
ΔY
b
ΔJ
a
ΔY
45°
O
Ye1
Ye2
Y
The multiplier ‘round’
Assumptions
mpw = 0.5
Increase in injections of £160m
Round
J (£m)
Y (£m)
Cd (£m)
W (£m)
1
160
160
80
80
2
80
40
40
3
40
20
20
4
20
10
10
5
10
5
5
6
5
2.5
2.5



320
160
160
1→
The multiplier ‘round’
Assumptions
mpw = 0.5
Increase in injections of £160m
Round
J (£m)
Y (£m)
Cd (£m)
W (£m)
1
160
160
80
80
2
80
40
40
3
40
20
20
4
20
10
10
5
10
5
5
6
5
2.5
2.5



320
160
160
1→
The multiplier ‘round’
Assumptions
mpw = 0.5
Increase in injections of £160m
Round
J (£m)
Y (£m)
Cd (£m)
W (£m)
1
160
160
80
80
2
80
40
40
3
40
20
20
4
20
10
10
5
10
5
5
6
5
2.5
2.5



320
160
160
1→
The multiplier ‘round’
Assumptions
mpw = 0.5
Increase in injections of £160m
Round
J (£m)
Y (£m)
Cd (£m)
W (£m)
1
160
160
80
80
2
80
40
40
3
40
20
20
4
20
10
10
5
10
5
5
6
5
2.5
2.5



320
160
160
1→
The multiplier ‘round’
Assumptions
mpw = 0.5
Increase in injections of £160m
Round
J (£m)
Y (£m)
Cd (£m)
W (£m)
1
160
160
80
80
2
80
40
40
3
40
20
20
4
20
10
10
5
10
5
5
6
5
2.5
2.5



320
160
160
1→
The multiplier ‘round’
Assumptions
mpw = 0.5
Increase in injections of £160m
Round
J (£m)
Y (£m)
Cd (£m)
W (£m)
1
160
160
80
80
2
80
40
40
3
40
20
20
4
20
10
10
5
10
5
5
6
5
2.5
2.5



320
160
160
1→
The multiplier ‘round’
Assumptions
mpw = 0.5
Increase in injections of £160m
Round
J (£m)
Y (£m)
Cd (£m)
W (£m)
1
160
160
80
80
2
80
40
40
3
40
20
20
4
20
10
10
5
10
5
5
6
5
2.5
2.5



320
160
160
1→
The multiplier ‘round’
Assumptions
mpw = 0.5
Increase in injections of £160m
Round
J (£m)
Y (£m)
Cd (£m)
W (£m)
1
160
160
80
80
2
80
40
40
3
40
20
20
4
20
10
10
5
10
5
5
6
5
2.5
2.5



320
160
160
1→
The Multiplier
• The ‘full-employment’ level of national income (YF)
• no deficiency of demand: no demand-deficient unemployment
W, J
O
The full-employment level of national income
YF
Y
The Multiplier
• The ‘full-employment’ level of national income (YF)
• no deficiency of demand: no demand-deficient unemployment
• The recessionary or deflationary gap
• the shortfall of national expenditure (E) below national income (Y) (and injections (J)
below withdrawals (W)) at YF
• causing equilibrium national income (Ye) to be below YF
The recessionary gap
W, J
W
J
O
Ye
Y
W, J
The recessionary gap
Recessionary gap
The amount by which
withdrawals exceed
injections at the fullemployment level of
national income
Recessionary gap
W
c
O
Ye
d
J
YF
Y
W, J, E
The recessionary gap
Y
E
O
Ye
YF
Y
W, J, E
The recessionary gap
Recessionary gap
The amount by which
national income
exceeds aggregate
expenditure at the
full-employment level
of national income
Y
E
a
b
Recessionary gap
O
Ye
YF
Y
W, J, E
The recessionary gap
Y
E
a
b
Recessionary gap
W
c
O
Ye
d
J
YF
Y
The Multiplier
• The ‘full-employment’ level of national income (YF)
• no deficiency of demand: no demand-deficient unemployment
• The recessionary or deflationary gap
• the shortfall of national expenditure (E) below national income (Y) (and injections (J)
below withdrawals (W)) at YF
• causing equilibrium national income (Ye) to be below YF
• cure for demand-deficient unemployment is to close deflationary gap
• use of fiscal and/or monetary policy
The Multiplier
• The inflationary gap
• the excess of national expenditure (E) over national income (Y) (and injections (J) over
withdrawals (W)) at YF
• causing equilibrium national income (Ye) to be above YF
• this is unachievable and hence causes demand-pull inflation
The inflationary gap
W, J
W
J
O
Ye
Y
W, J
The inflationary gap
W
J
O
YF
Ye
Y
W, J
The inflationary gap
Inflationary gap
The amount by which
injections exceed
withdrawals at the
full-employment level
of national income
Inflationary gap
W
g
J
h
O
YF
Ye
Y
W, J, E
The inflationary gap
Y
E
O
Ye
Y
W, J, E
The inflationary gap
Y
E
O
Ye
Y
The inflationary gap
W, J, E
Y
E
Inflationary gap
The amount by which
aggregate
expenditure exceeds
national income at the
full-employment level
of national income
e
f
Inflationary gap
O
YF
Ye
Y
The inflationary gap
W, J, E
Y
E
e
f
Inflationary gap
W
g
J
h
O
YF
Ye
Y
The Multiplier
• The inflationary gap
• the excess of national expenditure (E) over national income (Y) (and injections (J) over
withdrawals (W)) at YF
• causing equilibrium national income (Ye) to be above YF
• this is unachievable and hence causes demand-pull inflation
• inflationary gap may close automatically through
• prices rising faster than wages (causing a fall in real demand)
• higher domestic prices lead to lower exports (J) and higher imports (W)
• higher prices reduce value of saving; hence people save more (W)
• higher interest rates dampening demand
Allowing for inflation: the income/expenditure approach
E
c
Y
E3
E2
E1
f
e
a
45°
O
Ye1
YF
Ye2
Y
The Multiplier
• Inflation and the multiplier
• in simple model
• inflation does not occur up to YF
• inflation only occurs when an inflationary gap opens and Ye > YF
• in reality inflation may occur before YF is reached
• not all firms operate with same degree of slack and hence when AD rises:
• some may take up slack and employ more people
• others with no slack may simply raise prices
• other causes of inflation (e.g. supply shocks)
Summary
• Two goals: growth & Stability
• AD=Cd+I+G+(X-M)
• Business cycle – a certain pattern of fluctuation is repeating over time
• The circular flow model is extended into Gov., Financial institutions, and Foreign
countries
• Injections, Withdrawals
• Equilibrium when J=W
• The multiplier=1/mpw
Q: What’s the purpose of “Eat out to help out” policy? Is the policy more effective than direct subsidy on
restaurants? Sketch the EOHO scheme in the circular flow model.
Changing Conceptions of
Corporate Purpose: What You
Need to Know
MKIB116 2022-3
Lecture 5
Overview of Lecture
In today’s lecture I’m going to describe an ongoing struggle in our
society over how we define corporate purpose.
First half: I’ll contrast shareholder value ideology versus what I’ll call
stakeholderism.
Second half: I’ll explain why this struggle matters to you and your
career planning.
Telos: a fancy Greek word that means that end of something.
The telos of a knife is to cut things. We judge knives by how well they
achieve their telos.
Each type of organisation has a telos.
Corporate Purpose
What should the telos of commercial organisations (businesses) be?
How we answer this question has profound implications for the
following:
1) How CEOs/boards of directors define their jobs
2) Who gets a say in corporate strategy
3) How resources are allocated within companies
4) Who gets hired
Shareholder Primacy
The doctrine of shareholder primacy: shareholder-centric philosophy that
says that the ultimate purpose of a company is to maximizing the value that
belongs to shareholders.
It says the executives’ top duty is to maximize profits for the shareholders.
They should do so before considering the interests of other corporate
stakeholders, such as society, the community, consumers, and employees.
Managers should worry about the interests/feelings of these stakeholders
only insofar as doing so will maximise long-term profits.
Stakeholderism
This philosophy says that the managers’ duty to the investors
(shareholders) needs to balanced by their moral obligations to nonshareholder stakeholders, such as consumers, workers, local
communities, the government.
Says that companies/managers ought to become engaged with social
issues. Should take a stand and freely spend shareholders’ money on
social/environmental expenditures.
Long-Standing Battle
In the business press, it is common to assert that the rise of in recent
stakeholderism is something completely new.
The tension between shareholder primacy and stakeholderism is
actually an old one.
Shareholder primacy emerged as a principle to structure how the large
companies that emerged out of the Industrial Revolution operated.
Precursors of Stakeholderism
Today’s business corporations developed out of the guilds and
municipal corporations of the Middle Ages.
Those organisations blended a range of commercial, social, political,
and even religious functions.
This approach was perpetuated by the early business corporations.
In return for the rare privilege of limited liability, the state expected
these companies to discharge social and political functions.
Shareholder Primacy in Law and Custom
In the Victorian period, limited liability ceased to be a privilege granted
to firms that discharged public purpose.
The state started granting it almost automatically.
There was the growth of companies and of the separation of ownership
and management, followed by IPOs.
Investors needed legal protection to be induced to buy shares in distant
companies.
‘Cake and Ales’ Doctrine
English courts declared that the duty of company directors/managers
was to maximise profits for shareholders.
Without this declaration, investor confidence would have been reduced
and it would have been harder to raise industrial capital from strangers.
Courts developed the “cake and ales” doctrine: said that managers
were legally permitted to be generous with shareholders’ money, only
when doing so could be reasonable represented as calculated to
maximise long-term profits.
At the time, it was customary for companies to occasionally treat
workers to cakes and ale, above and beyond their contractual
compensation.
“The law doesn’t say that there are to be no cakes and ale, but that
there are to be no cakes and ale except such as are required for the
benefit of the company [and its shareholders].”
There was an important English court case that influenced how judges,
lawyers, and managers throughout the English-speaking world think
about the social obligations of company managers.
Hutton v West Cork Railway Co (1883).
Shareholders could sue directors as individuals if the directors were
philanthropic with company funds e.g., by making donations or paying
workers more than was strictly necessary.
Typical Lawsuit
Brunner Mond was a big chemical company.
It wanted to nurture the next generation of British chemistry students with
scholarships and schemes that are analogous to a modern placement year.
A shareholder named Evans objected to this and sued the managers for their
personal money.
Evans v. Brunner Mond & Company, (1921) court case: court accepted the
defence by the managers that their expenditure would ultimately benefit
shareholders.
Shareholder primacy remained the dominant philosophy/set of assumptions
in UK and US corporate governance for most of the 20th century.
There was some pushback by “progressive” managers inspired by German
corporate governance, but the law sided with shareholders and was
informed by shareholder primacy.
Two world wars suspended/modified shareholder primacy: managers could
plausibly argue that the unpatriotic pursuit of profits in wartime would
diminish long-term value of the firm to shareholders.
Advantages of Shareholder Primacy
It gives everyone a small set of defined performance metrics for holding
managers to account.
Instruction to managers: make as much money as possible insofar as the law
and community mores permit.
According to this performance standard, a good manager is one who makes
the shareholders lots of profit.
This performance metric limits the discretion of the managers and the
relevance of their ideology/religion/values etc.
When shareholders are confident that law and custom are on their side and
will protect them from opportunistic managers, they are more likely to put
their savings into corporate equities.
In countries in which the principle of shareholder primacy is strongest (US,
UK), companies tend to be worth more than in countries where it is weaker,
such as Germany.
As the next slide shows, in countries in which the principle of shareholder
primacy is strongest, stock market capitalisation as a percentage of GDP is
highest.
Milton Friedman (1912-2006) was
one of the most influential
economists of his generation.
He influenced the deregulation/antistatist agenda of Reagan, Thatcher
plus neo-liberal reformers in
developing countries.
He was a strong supporter of
Shareholder Primacy.
The Friedman Doctrine (1970): the sole social responsibility of
companies is to maximise profits for shareholders.
Managers should focus on making as much profit as they are allowed
to do using legal means.
If this behaviour produces any downsides such as pollution, we should
rely on regulation/the government not the conscience of managers to
mitigate the problem.
Heyday of Shareholder Value
Milton Friedman’s philosophy became increasingly influential in the business
world in the 1980s and 1990s.
CEOs such as Jack Welch of General Electric epitomised this approach with
their ruthless approach to cost-cutting, outsourcing, globalisation.
Business organisations such as the Confederation of British Industry and the
Business Roundtable in the United States explicitly endorsed the Friedman
doctrine, as did powerful pension funds.
There were even predictions that shareholder value ideology would become
dominant in Germany!!!
Downstream Effects of Shareholder Value
Ideology
In the 1980s and 1990s, a rather extreme form of shareholder primacy called
Shareholder Value Ideology influenced the thinking of the people who run
companies.
It had a ripple effect through corporate cultures.
Many departments within companies adopted “rank and yank” HR practice
similar to those developed at General Electric under CEO Jack Welch.
Each year, GE identified and fired the bottom-performing 10 percent of the
workforce in each unit.
Correlation Is Not Causation
They heyday of shareholder primacy/shareholder value ideology in UK and
US business coincided with a period in which government policy moved in a
strongly neoliberal direction.
The economy was deregulated in ways that increased the gap between rich
and poor.
Governments allowed firms to increase profits by closing factories in the first
world and moving production to developing countries.
A backlash against neoliberal, business, and, by extension, shareholder
primacy emerged.
Since the Global Financial Crisis of 2008, the uptake of stakeholderist
ideas has increased.
I would attribute this visible change less to the eloquence of the
exponents of stakeholderism than the changing socio-political context
and the need of firms to maintain socio-political legitimacy.
Business is increasingly haunted by the spectre of socialism on the left
and economic nationalism on the right.
Enforcement?
CEOs now routinely endorse stakeholderism over shareholder primacy.
Should we just trust them to wisely balance the interests of different
stakeholders, or should we change corporate governance systems to enforce
the new philosophy?
Theresa May proposed requiring all large companies to set aside one seat on
the board of directors for the elected representative of the workers.
This law was never passed due to massive opposition from CEOs.
Consequences of Stakeholderism
Defenders of Shareholder Primacy, such as Lucian Bebchuk, say that
stakeholderism is undermining economic efficiency and will reduce economic
growth over the longer term.
A parallel criticism of stakeholderism is that it causes mission drift: managers
are so busy solving social and environmental problems that they ignore their
core task: producing goods and services efficiently.
It is also unclear which ideology/worldview ought to influence how
managers pursue social objectives: left-wing and right-wing people have
different feelings about which business practices are ethical.
After the break, I will talk about
the various jobs that have been
created following the rise of
stakeholderism.
Implications for you as job
applicants.
Implications of the Rise of Stakeholderism for
Young Professionals
The embrace of different types of stakeholderism by firms has resulted
in the proliferation of departments/jobs within companies related to
social and environmental objectives.
These new jobs in roles in social and environmental auditing,
accreditation, HR, and CSR departments have created opportunities for
you.
Recruitment and selection has also been influenced by stakeholderism.
Stakeholders are increasingly
sceptical of claims to ethicality
made by firms.
Complex auditing and certification
systems have been created.
Perhaps the most elaborate is the
B Corporation movement.
Financial auditing systems evolved during the period of shareholder
primacy.
Big 4 accounting firms have long audited the claims companies make
about their profits.
We have also long had industrial standard certification e.g. British
Standard for electricals.
What’s new is the proliferation of social and environmental auditing.
Companies increasingly have CSR and environmental reports on their
websites.
People are hired to produce them.
86% of large US companies published sustainability or CSR reports in
2018, compared to fewer than 20% in 2011.
Similar trend in the UK, especially following the passage of the Modern
Slavery Act 2015.
Institutional Investors
There are two main sources of private-sector capital for firms: retail investors
who buy shares and bonds and large institutional investors, where
professionals manage money on behalf of others.
Retail investors still focus on profit and loss and trying to maximise their ROI.
Institutional investors such as pension funds have repudiated this approach
and have said they will invest only in firms that have ESG scores.
As a result, there is now a thriving ESG industry.
A company’s ESG score measure of how analysts think it is performing
on a wide range of environmental, social and governance (ESG) topics.
Pension funds and other institutional investors will only invest in
companies with high ESG scores from firms such as Refinitiv and MSCI.
Critics argue that the fancy scores just reflect the personal
views/priorities of a tiny group of unelected and largely anonymous
analysts.
Let’s watch a slide from Legal and General about ESG

It suggests that there aren’t trade-offs between financial returns and
social performance.
Let’s leave that issue to the side for now.
ESG issues are inherently complex, as they involve trade-offs between
different environmental, social and governance objectives.
For instance, closing down an oil refinery might be good for CO2 emissions,
bad for workers and the local community.
What weighting should be given to these different considerations is highly
subjective.
Complexity invites the proliferation of analysts’ jobs and management
consultancy expenditures.
Firms such as McKinsey have long
provided advice to managers and
have acquired tremendous
influence and power.
They also hire large number of
university graduates as junior
analysts.

The rise of stakeholderism provides graduates with new career
opportunities to extract money from firms both as direct employees
and as management consultants.
You can take advantage of this trend by:
1) Learning how to speak the talk of ESG/stakeholderism
2) Researching how to compete for jobs at firms such as McKinsey
3) Acquiring the soft skills that this type of work requires
How Stakeholderism is Changing Graduate
Recruitment
Equality, Diversity, and Inclusion are increasingly important to firms as
managers seek to engage with social issues
This emphasis has made HR departments more sensitive to
unconscious and conscious bias against applicants with different types
of characteristics
A variety of certification schemes have been created
Stakeholderism and Hiring in the UK Context
Universally, there is a trend towards name-blinding CVs to reduce
ethnic/gender discrimination
In the UK context, there is an increasing emphasis on social class and
the need for elite organisations to hire more young people from
working-class backgrounds/regions
Organisations are now attempting to measure the socio-economic
backgrounds of applicants
UK organisations increasingly measure socio-economic diversity by
asking applicants to identify the occupation of the higher-paid parent in
the year they turned 14.
https://www.gov.uk/government/publications/socio-economicbackground/socio-economic-background-seb

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