Dr. Pass - Economics

(a) in detailed planning within broad limits set by a top management;

(b) in summarizing information to be passed upwards as a basis for decision-making by their superiors. These communications problems make it difficult for senior managers to impose their objectives upon the organization.

Although the behavioural theory of the firm is somewhat descriptive, lacking the determinism necessary to generate tes table predictions, it has offered many useful insights into the objectives of large companies. See also MANAGERIAL THEORIES OF THE FIRM, PROFIT MAXIMIZATION, FIRM OBJECTIVES, PRINCIPAL-AGENT THEORY.

below-the-line promotionsee ABOVE-THE-LINE PROMOTION.

benchmarkingthe process of measuring aspects of a firm’s performance and comparing this measured performance with that of other firms. Benchmarking can help a firm to discover where its performance is deficient and can suggest means of improving competitive performance.

benefit driverselements of a firm’s operations that individually and collectively create ‘benefits’ for consumers who buy the firm’s product, e.g. quality, design, accessories, performance in use, guarantees and warranties. The ability to offer a product that is ‘perceived’ by customers to offer superior value to them is an important consideration where PRODUCT DIFFERENTIATION is the key basis of the firm’s COMPETITIVE ADVANTAGE over rival suppliers. See VALUE-CREATED MODEL.

Benefits Agencysee DEPARTMENT FOR WORK AND PENSIONS.

benefits-received principle of taxationthe principle that those who benefit most from government-supplied goods and services should pay the TAXES that finance them. The problem with this proposition, apart from the obvious difficulties of quantifying the benefits received by individuals, particularly as regards the provision of items such as national defence, fire service, etc., is that it cannot be reconciled with the wider responsibilities accepted by government in providing social services and welfare benefits, i.e. it would make no sense at all to tax an unemployed man in order to finance his unemployment pay. See ABILITY-TO-PAY PRINCIPLE OF TAXATION, REDISTRIBUTION-OF-INCOME PRINCIPLE OF TAXATION.

Bertrand duopolysee DUOPOLY.

bid1 an offer by one company to purchase all or the majority of the SHARES of another company as a means of effecting a TAKEOVER. The bid price offered by the predator for the voting shares in the victim company must generally exceed the current market price of those shares, the difference being a premium that the predator must pay for control of the company. On occasions, however, the market price of the shares may subsequently rise to exceed the initial bid price where investors either feel that the bid price undervalues the company or where investors anticipate, for example, the possibility of a second party making a higher bid. The offer price could be paid solely in cash, or in a mix of cash and shares in the acquirer’s own company, or solely in terms of the acquirer’s shares (called a paper bid). In order to finance a takeover bid, a predator company may raise loans. See TAKEOVER BID (leveraged bid). 2 an indication of willingness to purchase an item that is for sale at the prevailing selling price. This may occur at auction when many purchasers bid for items on sale, the final sale going to the purchaser offering the highest price unless a predetermined reserve price has been set that was not reached. See AUCTION.

bid pricethe price at which a dealer in a FINANCIAL SECURITY (such as a STOCK or SHARE), FOREIGN CURRENCY or COMMODITY (tin, wheat, etc.) is prepared to buy a security, currency or commodity. Such dealers usually cite two prices to potential customers, the smaller bid price and a higher ‘offer price’ or ‘ask price’ at which they are prepared to sell a security, etc. The difference between the bid and offer price (referred to as the ‘spread’) represents the dealer’s profit margin on the transaction. See MARKET MAKER.

big bangsee STOCK EXCHANGE.

bilateral flowsmovements of money between sectors of the economy to match opposite flows of goods and services. For example, income in return for factor inputs supplied and consumption expenditure in payment for goods and services consumed. Bilateral flows make it possible to ignore flows of goods and services in the economy and to concentrate on money movements in the CIRCULAR FLOW OF NATIONAL INCOME MODEL.

bilateral monopolya market situation comprising one seller (like MONOPOLY) and one buyer (like MONOPSONY).

bilateral oligopolya market situation with a significant degree of seller concentration (like OLIGOPOLY) and a significant degree of buyer concentration (like OLIGOPSONY). See COUNTERVAILING POWER.

bilateral tradethe trade between two countries. Bilateral trade is a part of INTERNATIONAL TRADE, which is multilateral in scope. See MULTILATERAL TRADE, COUNTERTRADE.

bill1 a financial instrument, such as a BILL OF EXCHANGE and TREASURY BILL, that is issued by a firm or government as a means of borrowing money.

2 the colloquial term used to describe an INVOICE (a request for payment for products or services received).

3 a draft of a particular piece of legislation that forms the basis of an Act of Parliament, such as the Fair Trading Act 1973.

bill-discounting interest ratethe INTEREST RATE at which the BANK OF ENGLAND is prepared to lend money to the DISCOUNT HOUSES. This rate is fixed by reference to the ‘official’ rate of interest set by the MONETARY POLICY COMMITTEE of the Bank of England.

bill of exchangea FINANCIAL SECURITY representing an amount of CREDIT extended by one business to another for a short period of time (usually three months). The lender draws up a bill of exchange for a specified sum of money payable at a given future date, and the borrower signifies his agreement to pay the amount indicated by signing (accepting) the bill. Most bills are ‘discounted’ (i.e. bought from the drawer) by the DISCOUNT MARKET for an amount less than the face value of the bill (the difference between the two constitutes the interest charged). Bills are frequently purchased by the COMMERCIAL BANKS to be held as part of their RESERVE ASSET RATIO. See DISCOUNT, ACCEPTING HOUSE, DISCOUNT HOUSE.

biodiversitythe variety of plant and animal life in a particular area. Envi-ronmentalists have expressed concern about the extent to which ECONOMIC GROWTH, in particular modern methods of farming, forestry and manufacturing, has reduced biodiversity, with some plant and animal species becoming rare or extinct. See POLLUTION.

birth ratethe number of people born into a POPULATION per thousand per year. In 2004, for example, the UK birth rate was 11 people per 1,000 of the population. The difference between this rate and the DEATH RATE is used to calculate the rate of growth of the population of a country over time. The birth rate tends to decline as a country attains higher levels of economic development. See DEMOGRAPHIC TRANSITION.

black economyNONMARKETED ECONOMIC ACTIVITY that is not recorded in the NATIONAL INCOME ACCOUNTS, either because such activity does not pass through the market place or because it is illegal. Illegality is not the same as nonmarketed activity. Illegal economic activity may operate quite efficiently in the usual PRICE SYSTEM, which is determined by SUPPLY and DEMAND. Examples may be the purchase and sale of illegal drugs on the street, or alcohol in the US prohibition era of the 1920s, or foodstuffs in Britain during the Second World War when RATIONING was in force. Nonmarketed activity does not have a price determined by demand and supply. Certain nonmarketed activity may be undertaken for altruistic reasons, for example, the services of a housewife on behalf of her family and the work of charity volunteers. Other nonmarketed activity is done on a BARTER basis, for example, where a mechanic services the motor car of an electrician who in return installs new light fittings in the mechanic’s house. Money has not changed hands and the activity is not recorded. Most references to the black economy refer to the illegal situation of people working without declaring their income. See BLACK MARKET.