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3.1 Introduction
1
markets. It emphasizes the importance of institutional factors such as the number of firms in
an industry and the ease of entry by new firms (and exit of existing firms) as major influences
on the degree of market competition in an industry or market and in turn, the impact of
market structure on prices, supplies and the type of competitive strategies adopted in
industry. These institutional or structural characteristics are important considerations also for
governments and industry stakeholders in predicting the effects of changes in government
microeconomic policies.
With this background in mind, this chapter considers how different approaches to
microeconomics relate to business management, then considers how one might choose
between different economic perspectives before considering the applicability of micro-
economic policy to business management and subsequently concluding.
2
explain economic phenomena. In case (b), economic phenomena in set
A become irrelevant with the passage of time but a new set C becomes
important and adds to the relevant set B.
Figure 3.3 A representation of some different perspectives on microeconomics. 48
All the perspectives have different types of applications to business
management. Note that not all perspectives are represented, for
example, that attributed to the Austrian School of Economics is not.