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

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" »

Predatory Pricing in Oligopolies

Oligopolists may use predatory pricing to force rivals out of the market. This strategy involves keeping prices artificially low, often below the full cost of production.

Understanding the Demand Curve

Demand Definition

Demand is defined as the quantity of a product or service that a consumer is ready to buy at various prices over a period. The Demand Curve is a graph indicating the quantity demanded by the consumer at different prices.

The demand curve is downward sloping from left to right, depicting an inverse relationship between the price of the product and the quantity demanded.

Movement vs. Shift in Demand Curve

• The movement in the demand curve occurs due to a change in the price of the commodity.
• The shift in

What is GDP?

GDP is the total monetary or market value of all finished goods and services produced within a country's border in a specific period of time.

What is HDI?

HDI is an index of key dimensions of human development. There are three:

1. A long and healthy life: Measured by life expectancy.
2. Access to education: Measured by expected years of schooling of children, an entry age, and mean years of schooling of the adult population.
3. A decent standard of living: Measured by gross national income per capita adjusted for the price level of the country.

International Making-Bodies Institutions

United Nations

A supranational organization created in 1945. It ended the Second World War, guarantees security, peace, and the defense of human rights.

Organs:

• General

Distribution Channels

Three key flows define service distribution channels:

1. Information and Promotion Flow: Distribution of information and promotional materials to generate customer interest in purchasing the service.
2. Negotiation Flow: Reaching an agreement on the service features and terms to close the deal. Sell the right service to the right consumer.
3. Product Flow: Determining the delivery location.
   • People-processing and possession-processing services typically require physical facilities for delivery.
   • Information-processing services can often be delivered through electronic channels.

Service Location Strategies

Ministores

Create numerous small service factories to maximize geographic coverage.

Locating in Multipurpose Facilities

Establish service... Continue reading "Effective Service Distribution: Channels and Strategies" »

Management Control:

Process by which managers ensure that resources are obtained and used in the most efficient way to achieve goals. Defines strategy, organization MCS. Steps: Set goals, planning budgeting, measuring actual comparing, corrective.

Strategy:

Set of plans to achieve goals.

SWOT Analysis:

Analysis of the overall strategic possibilities of business and its environment. Purpose is to identify strategies that will create a firm-specific business model that will best align an organization's resources and capabilities with requirements of the environment.

BCG Matrix:

Aims to identify high-growth prospects by categorizing the company's products according to market growth and share.

Porter:

For developing an organization's strategy. It determines... Continue reading "Management Control Systems and Cost Analysis" »

Value Chain

Primary Activities

These activities relate directly to the physical creation, sale, maintenance, and support of a product or service.

• Inbound Logistics: All processes related to receiving, storing, and distributing inputs internally.
• Operations: Transformation activities that change inputs into outputs sold to customers. This is where operational systems create value.
• Outbound Logistics: Activities that deliver your product or service to your customer, including collection, storage, and distribution systems. These can be internal or external to your organization.
• Marketing and Sales: Processes used to persuade clients to purchase from you instead of competitors. The benefits you offer and how well you communicate them are sources of value.