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

Network Economics and the Information Sector

Network Effects

Network effects occur when the value of a network increases as the number of users increases. A prime example is Facebook. Networks consist of nodes (e.g., firms, individuals) connected by links (e.g., roads, railway lines, cables).

Network Externalities

Network externalities arise when a decision-maker doesn't bear the full cost or receive the full benefit of their actions within a network. This leads to sub-optimal market outcomes.

The Choice of Standards

Autarky Value

Autarky value refers to the value a customer derives from a product when no one else uses it, meaning there's no network effect.

Synchronization Value

Synchronization value is the additional value gained when a product format...

Does the Purchase of Government Debt by Monetary Authorities Enhance Macroeconomic Policy?

Yes, this is actually what happened in the aftermath of the financial crisis that led central banks (CBs) to buy large amounts of public debt. The explanation is as follows:

Impact of Central Bank Debt Purchases on Liquidity

When the CB buys a large amount of government debt, it implies a higher volume of liquidity injected into the economy. Once the volume of liquidity is such that the interest rate market hits the lower bound of the corridor (deposit rate), further injection of liquidity (quantity) allows them to also control the interest rate (price). The internal market will not fall further as the CB dominates all other aspects of the economy, and the...

The Great Depression, a period of severe economic downturn, lasted from 1929 to 1939. It was the worst economic depression in the history of the United States. While economists and historians often point to the stock market crash of October 24, 1929, as the start of the downturn, the reality is that the Great Depression was caused by a confluence of factors, not just one single event.

In the United States, the Great Depression crippled the presidency of Herbert Hoover and led to the election of Franklin D. Roosevelt in 1932. Promising the nation a "New Deal," Roosevelt would become the nation's longest-serving president. The economic downturn wasn't just confined to the United States; it affected much of the developed world. One consequence...

**The Definition of Business-to-Business Marketing**

Business-to-business marketing (or B2B marketing, as it is commonly known) involves the sale of one company’s product or service to another company.

**How Business-to-Business Marketing Differs from Business-to-Consumer Marketing**

The key distinguishing feature of a business-to-business market is that the customer is an organization rather than an individual consumer.

The nature of the product is not a determinant to distinguish between consumer market and business market.

Business-to-business markets are characterized by a higher concentration than business-to-consumer markets.

B2B markets are less price-elastic than B2C and might even end up more commonly having a reverse elasticity.

Dimensions:

Investing in Global Financial Markets

Capital Flows and Investment Opportunities

One of the main features of globalization is the free flow of capital across borders. Investors constantly seek profitable avenues to maximize their return on investment. As an individual, you can deposit money in a bank and earn interest. Banks, in turn, lend this money to individuals, businesses, and governments to finance their projects, profiting from the difference between interest earned on loans and interest paid on deposits.

Investment Options and Risk-Return Trade-off

Investors have various options, each with its own risk profile. Bonds offer interest payments and eventual repayment of principal, provided the issuer doesn't default. Shares, on the other hand,...

Asset Transformation

Asset transformation: Banks make profits by selling liabilities with one set of characteristics (risk, size, return, liquidity) and using the proceeds to buy assets with a different set of characteristics.

Example: Savings deposits held by one person can provide funds to the bank to give a loan to another person. The bank has transformed the savings account into a loan.

Haircut

Haircut: The excess amount of collateral above the amount of a loan.

Excess Reserves

Excess Reserves: Reserves in excess of required reserves.

Bank Holding Company

Bank Holding Company: A company that controls one or more banks, but does not necessarily engage in banking itself.

Examples: Berkshire, JPMorgan Chase

Subprime Mortgage

Subprime Mortgage: Mortgages...

CHAPTER 3

Financial Intermediation and Depository Institutions

Quiz

1. ____________ is the process by which individual savings are accumulated in depository institutions where the funds are then loaned out to consumers or invested in businesses.

1. Savings/investment
2. Financial intermediation
3. Contractual savings
4. Mortgage banking

Answer: b

2. Contractual savings organizations provide all of the following services with the exception of __________.

1. Collecting premiums on insurance policies
2. Accepting deposits or savings from individuals and then lending these pooled savings to businesses.
3. Providing retirement benefits and insurance against major financial losses.
4. Collecting employee or employer contributions from pension fund participants.

Answer: b

3. __________

Perf Elasticity

(Edp=8) when a minute change in price brings infinite change in Qd, demand is considered to perf elastic. Coefficient of elasticity of demand is equal to infinity here. Parallel to X-axis

Highly Elastic Demand

when a small percentage change in price results in high % change in Qd is highly elastic in nature, coefficient of elasticity in demand is greater than one.

Perf Inelastic Demand

when a big % change in price in price fails to bring any change in Qd the demand id perf inelastic. equal to 0.

Law Of Supply

other than things remaining the same, when price of a commodity increases its quantity supply also increases, and when price of commodity decreases its quantity supply also decreases.

Market Equilibrium

it is a state of balance...

Available for sale securities - are debt and equity securities that are neither held for trading, held to maturity, nor held for strategic reasons.

Business combination - purchase of more than 50% ownership of the investee’s stock.

Consolidated financial statement - Combined financial statements from parent and subsidiary company.

Cost method - Investment of less than 20% of the investee’s outstanding stock.

Debt securities - Notes and bonds that pay interest and have a fixed maturity date.

Dividend yield -measures the rate of return to stockholders, based on cash dividends.

Equity method - Investments between 20%-50% of the outstanding stock.

Equity securities - Are preferred and common stock that represent OWNERSHIP in a company and DO NOT