Notes, summaries, assignments, exams, and problems for Economics

Introduction

Price is the sum of all the values that customers give up to gain the benefits of acquiring or using a product. It is one of the most flexible elements of the marketing mix, as prices can be changed quickly.

Importance and Impact of Price

Price has a major impact on a firm's market share and profitability. Due to fixed costs, a small change in price can have a larger impact on profit.

In recent years, the Great Recession and the internet have made it easier for consumers to compare offers, leading to more frugal and conscious spending habits.

Cutting Prices: Not Always the Best Answer

Cutting prices is often not the best answer, as it can lead to lost profits, damaging price wars, and cheapening the brand.

Instead, companies should focus...

Merger

A combination of two or more companies in which the resulting firm maintains the identity of the acquiring company.

Consolidation

The combination of two or more firms, generally of equal size and market power, to form an entirely new entity.

Portfolio Effect

Merger allows acquiring firms to enjoy potentially desirable portfolio effect:

• Achieves risk reduction while maintaining firm’s rate of return

Tax Loss Carry Forward

A loss that can be carried forward for a number of years to offset future taxable income and perhaps utilized by another firm in a merger.

Horizontal Integration

The acquisition of a competitor.

Vertical Integration

The acquisition of customers or suppliers by the company.

Synergy

The recognition that the whole may be equal to more...

Auditing

Checking and evaluating financial records.

Cash Flow

The total amount of money being transferred into and out of a business, especially as affecting liquidity.

Balance Sheet

A statement of the assets, liabilities, and capital of a business or other organization.

Bookkeepers

Individuals who record transactions in purchase ledgers and sales ledgers.

Income

The money a company receives from supplying goods or services.

Expenditure

The money that a company spends.

Fee

A charge for a service performed by a bank.

Premiums

Payments for an insurance policy.

Conglomerate

A multi-industry company. It is generally formed when one company expands by acquiring other firms.

Insurance

A method of protecting a person or firm against financial loss resulting from damage...

1. Volatility of Returns

- Small company stocks

2. Christine's Return

P0= $42.40, P1= $38.20, Divd= 1.4%

- [(38.20-42.4)/42.4] + 0.014 = -8.51%

3. Scott's Annual Return

200 shares, P0= $48, n= 4 months, dividend= $0.22

HPR= -0.120

- Annual return= (1-0.120417)^(12/4)-1 = -31.95%

4. Annualized Return

Annual returns: 15%, 12%, -18%, 2%, 37%, n=5

- Standard deviation= 20.03%

5. Stock Return Range

Stock return= 14.6%, standard deviation= 19.2%, two-thirds of the time?

- -4.6% to 33.8%

6. Forecasting Returns

Historical dollar-weighted... If you want to forecast, the best:

- Arithmetic average return

7. Jeanette's Future Value

Investment= $12,000, n=4, arithmetic average= 8.72%, geometric average= 8.43%

- FV= 12,000(1+0.0843)^4 = $16,587

8. Black Stone's Geometric Average

The Innovator’s Canvas

Similar to the Business Model Canvas but with a different approach, as shown in the image above. We will focus on two key components: The Why and the Value Proposition Canvas.

The Why

Simon Sinek argues that many companies start with “how” instead of “why.” Some even lack a clear understanding of their purpose. Apple's success is attributed to starting with “why.”

“People don’t buy what you do. They buy why you do it.” - Simon Sinek

Sinek's Golden Circle framework revolves around three questions: why? (purpose), how? (process), and what? (results).

The Value Proposition Canvas

This canvas focuses on creating value for customers through products and services.

Customer Profile

• Customer Jobs: Tasks or problems

The Second Industrial Revolution (1870-1914)

Rapid Industrialization

The Second Industrial Revolution was characterized by rapid industrialization due to the increased importance of the financial sector in industry and the rise of finance capitalism.

Innovations and Changes Leading to Increased Production

Innovations and changes led to an increase in production, including:

• New sources of finance: Joint-stock companies, banks, and stock exchanges provided new ways to raise capital for businesses.
• New business structures: Cartels, trusts, and holding companies emerged to reduce competition and increase efficiency.
• New technological advances: Improvements in the Bessemer converter, the invention of dynamite, stainless steel, and artificial fibers revolutionized

Chapter 2

Paragraph Structure:

• Topic sentence: states the topic and introduces the main idea

• Body sentences: support the topic sentence

• Concluding sentence: restates the main idea and ends the paragraph

Steps to develop:

Narrow the topic: make it more specific. You can use brainstorming, questioning, or freewriting.

Topic sentence: it introduces the topic to the paragraph, it states the paragraph’s controlling idea, it is the most general sentence in the paragraph, and it is followed by other sentences that provide supporting facts and examples.

Controlling idea: writer’s opinion or attitude

Supporting ideas: facts and examples that provide the reader with interesting information about the subject matter

You can organize your ideas in:

Time order:...

Key Stakeholder Groups and Their Expectations

Understanding the needs and expectations of various stakeholder groups is crucial for business success. Here's a breakdown of major stakeholder groups and what they typically expect:

1. Owners and Investors

   Owners and investors have a financial or other interest in the organization. They generally seek high profits, dividends, long-term growth, and a positive corporate image.

   Example: An owner of company ABC expects a financial return on their investment.

2. Suppliers

   Companies often build strong relationships with suppliers. This fosters shared goals, visions, and strategies. Collaboration between buyers and sellers can deliver the best value to end customers, benefiting all partners.

   Example: Lulu Hypermarket,

Working Capital

Working capital is equal to current assets minus current liabilities.

Liquidity Ratios

Current Ratio

The current ratio is equal to current assets divided by current liabilities.

Quick Ratio (Acid-Test)

The quick ratio (acid-test) is found by dividing the most liquid current assets (cash, marketable securities, and accounts receivable) by current liabilities.

Accounts Receivable Turnover

The accounts receivable turnover is found by dividing net credit sales (if not available, then total sales) by the average accounts receivable.

Average accounts receivable is typically found by adding the beginning accounts receivable to the ending accounts receivable and dividing by 2.

Average Collection Period

The average collection period is found by...