Notes, summaries, assignments, exams, and exercises for Economics for Other courses

Agency Theory and Corporate Governance

Agency Theory: Managers' interests often diverge from those of the owners. For example, managers may over-consume perks (such as private jets) or avoid risky but profitable projects. Firms use "carrots and sticks" to realign incentives, primarily through:

1. Stock-based compensation
2. The threat of removal by the board of directors

Risk, Return, and Asset Roles

Risk and Return: Investors compete for assets offering a high return relative to their risk. Buying these assets raises their price and lowers the expected return. In equilibrium, return is commensurate with risk; a high expected return survives only when accompanied by risk (e.g., stocks vs. T-bills). The converse is not necessarily true: the trade-off constrains...

Management and Business Fundamentals

• Consultant – konsultant/doradca – a person who provides expert advice to a company
• Crisis – kryzys – a situation of danger or difficulty
• Innovation – innowacja – a new idea or method
• Objective (noun) – cel – something you plan to do or achieve
• Promotion – awans – when someone is raised to a higher or more important position
• Public sector – sektor publiczny – the section of the economy under government control
• Strategy – strategia – a plan for achieving success
• Subordinate – podwładny – a person with a less important position in an organization

Key Management Verbs

• Set objectives – wyznaczać cele (e.g., After an organization has set objectives, it has to make sure that it achieves

Multiple Choice Questions

Choose the correct option:

1. Concepts studied under Microeconomics.

   (a) National Income (b) General Price Level (c) Factor Pricing (d) Product Pricing

   Options: (i) a & b (ii) b & c (iii) c & d (iv) only b

   Ans: Option (iii) c & d

2. The law of DMU is important to

   (a) Producer (b) Consumer (c) Government (d) None of the above

   Option: (i) a & b (ii) b & c (iii) d (iv) a, b & c

   Ans: Option (iv) a, b and c

3. When price falls demand

   (a) Rises (b) Contracts (c) Remains constant (d) Becomes Negative

   Option: (i) a (ii) b (iii) c (iv) d

   Ans: Option (i) a

4. Product differentiation is possible in the following market

   a) Perfect competition. b) Monopoly c) Monopolistic competition. d) All of the above

   Option: (1) a &

A trade barrier is a limit on the quantity of a good that can be imported into a country.

False

A fitness trainer provides her services to clients as a sole proprietorship. What are the tax implications for this structure?

Income earned by a sole proprietorship passes to the owner to be taxed.

A nonprofit corporation...

provides limited liability to its members.

Every marketing plan has five main strategy areas, the Five P’s.

• People
• Product
• Place
• Price
• Promotion

A royalty fee is a...

ongoing payment based on a percentage of sales.

Some creative works or inventions have the status of public domain when...

their copyright or patent has expired.

Credit Unions are related to make profits through loans.

False

What are the three C’s that must be addressed in all

How Does a Bank Become Established?

Starting a bank involves a long organization process that could take a year or more, and permission from at least two regulatory authorities. Extensive information about the organizer(s), the business plan, senior management team, finances, capital adequacy, risk management infrastructure, and other relevant factors must be provided to the appropriate authorities.

How Can Commodity Money Provide a Measure of Value?

Commodity money provides a measure to value other goods and services. One service might be worth one pound of tobacco, while another service might be worth more or less.

What Is a State-Chartered Bank?

A chartered bank is a financial institution whose primary roles are to accept and safeguard monetary...

Short-Term Liquidity Ratios

• Current Ratio: CA / CL
• Quick Ratio: (CA - Inventory) / CL
• Acid Test: Cash / CL
• Working Capital (WC): CA - CL (If WC > 0, the company has liquidity to pay short-term debt)
• Minimum Working Capital (WCmin): RMmin + SFGmin + FGmin + CLmin + Cashmin - SUPPmin
• Balance Minimum: (Period * Activity) / 360
• Net Cash Flow (CF): WC - WCmin (>0 availability / <0 deficit)
• Basic Financial Ratio: (FA + WC) / (FA + WCmin) (>0 means resources exceed needs)
• Cash Flow Days: Avg Cash Balance / Avg Daily Expense to Pay

Solvency and Asset Structure

• Solvency: Assets / Liabilities
• Asset Structure: NCA:A / CA:A / CA:NCA / WC:NCA
• Financial Structure: L:(E+L) / E:(E+L) / CL:(E+L) / (NCL+E):(E+L)
• Permanent Resources Structure: E:PR / NCL:PR
• Economic

The first two accounting concepts, the Business Entity Concept and the Money Measurement Concept, are fundamental to accounting. Let us examine each one briefly:

Business Entity Concept

According to this concept, the business and the owner are two distinct entities. In other words, the individual and the business are separate.

Example: Mr. A starts a business named M/s Independent Trading Company and introduces capital of Rs 2,00,000 in cash. This increases the cash balance of the company by Rs 2,00,000, while simultaneously increasing the company's liability to Mr. A in the form of capital.

Money Measurement Concept

According to this concept, we can only record transactions in our accounting records that can be measured in monetary terms.

Going

Which topic is studied in Macro?

ALL (Output growth, Unemployment, Inflation)

Which is not a macroeconomic policy of governments

Stock prices

Equilibrium is defined as...

Aggregate output equals consumption minus investment

The saving/investment approach suggests that an economy is equilibrium when..

S=I

If S=-Co+(1-C1)(Y-T), the term (1-C1) is called the...

Marginal propensity to save

Which of the following indexes are used to measure the overall price?

ALL of ABOVE (CPI, PPI, GDP deflator)

The equilibrium condition for the goods market is called the...

IS relation

A decrease in the real money supply will shift the LM curve...

Upward and to the left

Lower real income... the demand for money and a lower price level... the demand for money

Decreases, increases

Liabilities

Utility Theory Concepts

Total Utility (TU): The aggregate satisfaction gained from consuming successive quantities of a good or service.

Marginal Utility (MU): The change in total utility resulting from the consumption of one extra unit of a given commodity.

Law of Diminishing Marginal Utility: As more of a good or service is consumed, the total utility will increase at a decreasing rate (i.e., marginal utility will decrease).

Optimum Purchase Rule: A consumer desiring to maximize total utility should purchase more goods and services until price equals marginal utility (P = MU).

Why Does MU Lead to a Downward Sloping Demand Curve?

• As consumption increases, MU decreases.
• A consumer attempting to maximize their satisfaction will be prepared to purchase