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

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. __________

Business Objectives

• Business Survival
• Profit
• Returns to Shareholders
• Growth of the Business
• Market Share
• Service to the Community

Objectives of Public Sector Organizations

• Financial: Meet profit targets set by the government.
• Service: Provide service to the community and meet quality targets set by the government.
• Social: Create employment.

Stakeholder Groups

• Owners
• Government
• Community
• Customers
• Managers
• Banks
• Workers

Stages of Economic Activity

• Primary: Extraction of Earth's natural resources.
• Secondary: Manufacturing of primary resources.
• Tertiary: Providing a service.

Business Growth

Internal growth or external growth (takeover or a merger with another business):

• Horizontal Integration: When one firm merges with or takes over another one in the same industry at

2(a)(i) Shareholders

2(a)(ii) Total Costs Increase

10,000 x 50HKD = 500,000 HKD

20,000 x 40HKD = 800,000 HKD

2(a)(iii) Profit Calculation

TR - TC = Profit

200,000 HKD

2(b)(i) Economies of Scale

Economies of scale mean that as output increases, cost per unit falls. So in Table 2A, we can observe how output increases from 10,000 to 20,000 and average cost falls from 50HKD to 40HKD.

2(b)(ii) Factors Contributing to Economies of Scale

• Bulk Buying: Can result in per-unit costs of raw materials falling.
• Division of Labor: Involves employing specialist employees to do specialist work. The production manager cannot do all of the work of the production department themselves.

2(b)(iii) Limiting Factor to Expansion

Lack of Finance: Banks may not loan money to small... Continue reading "Economies of Scale, Externalities, and Tourism: An Economic Analysis" »

Balance Scorecard Methodology

• It is the only one since the 1960s F
• Many standard management tools F
• Balance Scorecards are "strategic" T

Benefits of Using the BSC Methodology

• For performance monitoring and evaluation Public Sector
• To include non-financial measures Private Sector
• This should be developed first, then with a conscious understanding of what needs to be achieved Strategic linkage mode
• In the 1980s, organizations F
• A sustainable solution to the difficult task F
• These are linked together in the two perspectives Activities and outcomes
• This facilitates the articulation and development A workshop approach
• A 2005 survey of companies that use tools T
• The social perspective is one F

Steps in Using the BSC

• Select the strategic objectives 2
• Select financial

Conception of the Corporation

Legal fiction: nexus of contracts; pool of capital. // Legal entity: social and economic organism; purposeful organization.

Origins of the Corporation

Private agreement among property owners to pool and increase capital. // Created by lawmakers to encourage investment in long-term, large-scale projects needed by society.

Functions of the Corporation

Maximize wealth for shareholders. // Provide goods and services; provide employment; create opportunities for investment; drive innovation.

Responsibilities to Society

None (fictional entities can’t have responsibilities). // Fulfill business purpose and act as a good corporate citizen.

Ethical Standards

Unclear: whatever shareholders want, or obey law and avoid fraud or collusion.... Continue reading "The Corporation: Origins, Functions, and Responsibilities" »

Monetary Policy

Monetary policy hinges on the relationship between interest rates (the cost of borrowing money) and the total money supply within an economy. It employs various tools to control one or both of these factors, aiming to influence outcomes such as economic growth, inflation, exchange rates, and unemployment. When a single entity controls currency issuance or a regulated system governs it through banks linked to a central bank, the monetary authority can adjust the money supply and, consequently, influence interest rates.

Monetary policy focuses on managing:

1. The supply of money
2. The availability of money
3. The cost of money (interest rates)

These efforts aim to achieve objectives related to economic growth and stability.

Objectives of Monetary

Economic Profits

Economic profits are calculated as total revenue (TR) minus accounting (explicit) costs and implicit costs.

Economic costs = accounting (explicit) costs - implicit costs.

In managerial economics, the term "costs" refers to economic costs, and the term "profits" refers to economic profits.

Baumol's Sales Revenue Maximizing Model in Practice

Large firms have research units that develop new product ideas or production techniques. The application of these projects is spread over time to avoid wide swings in the firm's economic performance. Baumol seems to imply that the risk-avoidance and the desire for steady growth of large corporations secure 'orderly markets,' in the sense that they have stabilizing effects on the economy.

O. Williamson'

• Importance of Industrial Marketing

  Industrial Marketing is crucial as organizations require diverse products and services.

• Customization in B2B Offerings

  Industrial marketing products and services are often customized to client needs.

• Understanding Derived Demand

  Derived demand: Products are utilized to produce other goods or services.

• Characteristics of Industrial Markets

  Industrial markets are characterized by fewer, larger buyers.

• Concept of Joint Demand

  Joint demand: Occurs when one industrial product's utility depends on the existence of another. For example, a pump set is unusable without an electric motor or diesel engine.

• Key Industrial Customers

  Industrial Customers: Primarily industrial distribution dealers.

• Government as a Customer

  Government

Impact of Pressure Groups on Economic Growth

Pressure groups interfere with the economy's capacity to embrace innovation and thus reduce the rate of growth. For example:

• A labour union may repress labor-saving innovation
• Slow decision-making may cause delays in adapting to new technologies
• Pressure groups may slow growth by reducing the pace of resource reallocation

Olson’s theory of collective action suggests that the structure of pressure groups affects the distribution of income and individuals' incentives, impacting long-run economic performance.

Significance of Economic Institutions in Long-Run Economic Growth

The prosperity of a society depends on its economic institutions. Market failures provide a rationale for government intervention, and... Continue reading "Impact of Pressure Groups on Economic Growth and Institutions" »