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

Theory of Indifference Curves

Developed by Prof. Thomas S. Alvarez

ECONOMICS AND INDUSTRIAL ORGANIZATION I

Indifference Curves

The table below shows points in four different indifference curves for a consumer.
(a) Draw the indifference curves I, II, III, and IV on the same set of axes.
(b) What are indifference curves?

I II III IV
Qx Qy Qx Qy Qx Qy Qx Qy
2 13 3 12 5 12 7 12
3 6 4 8 5.5 9 8 9
4 4.5 5 6.3 6.3 8.3 9 7
5 3.5 6 5 7 7 10 6.3
6 3 7 4.4 8 6 11 5.7
7 2.7 8 4 9 5.4 12 5.3

(a)

(b) Indifference curves graphically display the tastes and preferences of consumers (in the analysis of utility, the total utility curve introduced consumer tastes). The consumer is indifferent to all the various combinations of X and Y on the same indifference curve... Continue reading "Indifference Curves, Budget Lines, and Consumer Equilibrium" »

The Prisoner's Dilemma

The Prisoner's Dilemma is a fundamental concept in economics and game theory. At its simplest, it illustrates why cooperation can be challenging, even when mutually beneficial. This difficulty arises because one party cannot reliably predict the other's actions. For example, consider two farms alongside a river. The river will flood unless $1,000 is spent on flood control. Both farmers will suffer significant losses if it floods. The optimal solution is for both farmers to pay $500 each. However, each farmer knows that if the other farmer paid the full $1,000, they would receive the benefit of flood control for free. Consequently, each waits for the other to pay the entire $1,000. In the meantime, the river floods. This... Continue reading "Essential Economic Concepts: Dilemmas, Trade, and Market Dynamics" »

BEM10 – Chapter 1: Business Fundamentals

1. Foundations of Business

Business: An organization that sells goods or services to earn a profit.

Goods vs. Services

• Goods: Tangible items that can be stored (e.g., phone, pizza).
• Services: Intangible actions that cannot be stored (e.g., haircut, car wash).

For-Profit vs. Not-for-Profit

• For-Profit: The primary goal is to generate financial gain.
• Not-for-Profit: The primary goal is a social or community cause with no profit motive.

Standard of Living vs. Quality of Life

• Standard of Living: The amount of goods and services people can afford to buy (e.g., Canada has a high standard of living).
• Quality of Life: The overall happiness level, including health, education, and life expectancy.

2. Key Financial Terms

• Revenue:

Surplus and Deficit Units

Surplus units, or savers, give up consumption now to increase future consumption. Deficit units increase their consumption now but give up their consumption in the future.

Categories of Financial Institutions

1. Banks - Take savings from depositors and make loans.
2. Investment and Merchant Banks - Provide services to corporate and government clients to earn income fees.

Categories of Financial Instruments

1. Equity - An ownership interest in an asset.
2. Debt - A contractual claim to interest payments and payment of principal.
3. Derivatives - A financial instrument that derives its value from a physical market or commodity.

Money Market vs. Capital Market

• Money Market - Issuing and trading short-term securities (less than one year).
• Capital

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

Notes on Specific Tax Provisions

Preliminary Expenditure under Section 35D

Preliminary Expenditure refers to the expenses incurred by an assessee before the commencement of the business or after the commencement of the business in connection with the extension of the existing undertaking or the setting up of a new unit.

• Nature of Expenditure: Since these expenses are incurred before the business starts generating revenue, they are typically capital in nature and would normally be disallowed as a deduction.
• Purpose of Section 35D: This section allows a statutory deduction by amortizing the eligible preliminary expenses over a period of five years to encourage industrial growth and compensate promoters for the costs incurred in establishing a business.

Daily Trading Phases and Mechanics

1. Pre-Opening and Opening Auction (8:30 – 9:00)

The 30-minute pre-opening period allows orders to buy and sell to be entered into the system. The official opening occurs when the equilibrium point of supply and demand is reached (where the greatest volume of buyers and sellers agree). New orders cannot be entered during the calculation period. This auction ends randomly, varying by up to 30 seconds to prevent price manipulation.

2. Opening Auction

After auction orders are matched at the equilibrium price, unmatched orders remain to form the basis of the open session order book. The market then opens, and further orders may enter.

3. Open Market (9:00 – 17:30)

During this period (or 11:30 – 17:30 for LatIbex)... Continue reading "Spanish Stock Market Trading Phases and Order Types" »

Managing Interest Rate Risk in Commercial Banks

Interest rate risk is a critical concern for commercial banks, as fluctuations in market rates directly impact profitability and net interest income (NII). A primary tool for managing this exposure is the repricing model, commonly referred to as the GAP model.

Understanding the Repricing Model

The repricing model quantifies the difference between rate-sensitive assets (RSA) and rate-sensitive liabilities (RSL) over a defined time horizon.

• Rate-Sensitive Assets (RSA): Assets with interest rates that can change or reprice within a specific maturity period, such as floating-rate loans and short-term securities.
• Rate-Sensitive Liabilities (RSL): Liabilities with interest rates that can change within the

What is an Industry?

An industry refers to a group of enterprises or organizations that produce or supply similar types of goods or services. Industries form the backbone of any economy, as they drive production, generate employment, create wealth, and facilitate economic development.

Definition and Nature of an Industry

An industry encompasses:

• Firms producing homogeneous or closely related products (e.g., automotive industry includes car manufacturers).
• Economic activities grouped by function or output (e.g., tourism industry, banking industry).
• Sectors operating under similar market conditions, regulations, and technologies.

Industries can vary based on:

• Size (small-scale vs. large-scale),
• Ownership (private, public, cooperative),
• Nature of activity

Introduction

Hello, my name is Tomas Mastronardi. Today I'm going to discuss international trade and two important ideologies: free trade and protectionism. We'll also explore trade wars, global trade tensions, and conclude with a summary of the key arguments.

Free Trade

Free trade promotes the unrestricted flow of goods and services across borders. Proponents argue that removing barriers to trade leads to economic growth, efficiency, and consumer benefits. Free trade agreements, such as the North American Free Trade Agreement (NAFTA) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), aim to reduce trade barriers and promote market access.

Protectionism

Protectionism, conversely, seeks to shield domestic industries... Continue reading "International Trade: Free Trade vs. Protectionism" »