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

Glovo's Primary Activities: Core Value Creation

• Inbound Logistics

  Glovo partners with local restaurants, stores, and service providers to secure a steady supply of goods available for delivery. This involves managing relationships and ensuring that partners have the necessary infrastructure to fulfill orders efficiently.

• Operations Management

  Glovo’s operations include the processing and coordination of orders through its app, from customer selection to payment and order dispatch. The company uses algorithms to optimize delivery routing, reduce wait times, and ensure efficient order batching, contributing directly to its value proposition of fast delivery.

• Outbound Logistics and Delivery

  As a delivery service, outbound logistics are critical. Glovo’s

Understanding GST: Meaning and Purpose

GST (Goods and Services Tax) is a comprehensive, destination-based indirect tax introduced in India on 1 July 2017. It replaced multiple indirect taxes levied by the Central and State Governments, creating a unified national market. GST is charged on the supply of goods and services and is ultimately borne by the final consumer.

Meaning of GST

GST is a value-added tax levied on the supply of goods and services at each stage of the supply chain. Through the Input Tax Credit (ITC) mechanism, tax paid at earlier stages can be adjusted against tax liability at later stages, effectively eliminating the cascading effect of taxation.

The Need for GST

Before GST, India operated under a complex indirect tax system consisting... Continue reading "GST in India: Meaning, Objectives, and Tax Structure" »

Investment and Income in the Keynesian Model

Question 1: Graphically show that an increase in investment in the economy results in a proportionate increase in income in the simple Keynesian model.

Answer: In the simple Keynesian model, national income is determined by aggregate expenditure. Assume a closed economy with no government and no foreign trade.

Equilibrium condition: Y = C + I.

Let C = a + bY. When autonomous investment rises by ΔI, aggregate expenditure rises. Producers increase output and income. Higher income creates further consumption, which causes another increase in income. This continues in successive rounds.

Investment multiplier:
K = 1 / (1 − MPC) = 1 / MPS
Therefore, ΔY = K × ΔI.

Example: If MPC = 0.8, K = 5. If investment... Continue reading "Macroeconomics Principles and Keynesian Analysis" »

What is a Firm?

Let us now try to understand the meaning of a 'firm'. A firm is a focal point of the production system of any country. A firm produces goods with the help of its own resources. Sometimes these resources are borrowed from outside, and they are paid remuneration (price) for using them, for example, land, labor, capital, etc. A firm is an organizational unit, while a plant is a 'technical unit'. The objective of a firm in organizing such factors of production is to maximize profit. In other words, profit is the main objective of a firm. Any decision of a firm is taken in accordance with this objective.

Two Views of a Firm in Business Economics

In business economics, a firm is considered in two ways:

1. From the theoretical point of view.

Balance Sheet Assets

Total Assets = Non-current assets + Current assets

• Net non-current assets = Gross asset + Accumulated amortization
• Gross asset = Gross asset (past year) + Capex
• Accumulated amortization = Gross asset * Cost of debt
• Current assets = Customer receivables + Inventory + VAT recoverable + Total cash
• Customer receivables = (Revenue / 12) * Average receivable periods (months) * (1 + VAT rate)
• Inventory = (Average supplier periods (days) * (Quantity (B) * Unit cost sale (B) + Quantity (A) * Unit cost sale (A))) / 360
• VAT recoverable = If Output VAT – Input VAT < 0; then Output VAT – Input VAT
• Total cash = Operating cash + Non-operating cash
  • Operating cash = Provided in statement
  • Non-operating cash = Past year + FCe

Balance Sheet Equity

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... Continue reading "Financial Market Dynamics and Investment Principles" »

Understanding Political Economy

Political economy applies economic principles to the analysis of political decision-making.

Public Goods & Direct Democracy

Economists have studied several methods for choosing levels of public goods in a direct democracy.

Lindahl Pricing & Preference Revelation

Lindahl pricing results in a unanimous decision to provide an efficient quantity of public goods, but relies on honest revelation of preferences.

Majority Voting Challenges

Majority voting may lead to inconsistent decisions regarding public goods if some people's preferences are not single-peaked.

Logrolling: Trading Votes

Logrolling allows voters to express the intensity of their preferences by trading votes. However, minority gains may come at the expense... Continue reading "Political Economy: Government Decisions & Public Policy" »

Net Present Value and Cash Flows

The Net Present Value (NPV) formula is the sum of cash flows discounted by appropriate interest rates in future time periods. Free Cash Flows (FCF) are not simply profit, as non-cash assets exist, whilst FCF is equal to Cash From Operations (CFO) minus Capital Expenditure (CAPEX) minus the change in working capital (if included). Working capital is equal to current assets (e.g., accounts receivable) minus current liabilities (accounts payable). Investments in working capital are cash outflows, just like an investment in CAPEX. NPV only concerns cash because of the time value of money (cash can be reinvested to make more earnings, making a future £1 worth less than a present £1). Net income in year t is earnings... Continue reading "Corporate Finance: Valuation, Capital Structure, and M&A" »

Chapter 11 – Unemployment & Labor Markets

BLS Household Survey

• 60,000 households monthly

• Population: 333,287,557

  • Age 17+: 269,523,012

  • Children: 63,764,545

  • Civilian Noninstitutional Population: 263,973,000

  • Labor Force: 164,287,000

    • Employed: 158,291,000

    • Unemployed: 5,996,000

    • Not in Labor Force: 99,686,000

Key Formulas:

• Unemployment Rate (UR) = (Unemployed / Labor Force) × 100 → 3.7%

• Labor Force Participation Rate (LFPR) = (Labor Force / Civilian Noninstitutional Pop) × 100 → 62.2%

Alternate Measures of Unemployment (U1–U6):

• U3: Official unemployment rate

• Marginally attached: sought work in the past year but no longer looking

• Underskilled: working below qualifications or hours desired

• Involuntarily part-time: want full-time but work part-time

• US Unemployed