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

Chapter 10: Competitive Advantage

A firm is said to have a competitive advantage in a market if it earns a higher rate of economic profit compared to the average economic profit in the industry. It is a strategic positioning, the ability to create value and enjoy it over other firms.

Determinants of Profitability

Benefit position relative to competitors and the cost position relative to competitors influence the value created relative to competitors and join with the general industry condition influence the economic profitability. The comparative position of a firm is an important determinant of profit.

Components of Value Creation

Value Created = Firm Profit (or Producer Surplus) + Consumer Surplus = Consumer Benefit - Cost = B - C = CS + PS

Measures

Government Favorability

Local > State > Federal. Government favorability has been on a decline since 2001.

Participation Correlation

• High Participation: Elections with high participation rates, a strong mayor form of government, and elections held concurrently with state and national elections.
• Large Cities: Culturally diverse cities.
• Controversial Topics: Low participation, the opposite of high participation.

Types of Local Governments

Numbers of Local Governments:

• The number of Special Districts has been on the rise.
• The number of School districts has decreased.
• The number of Municipalities, Townships, and Counties has stayed the same.

Functions of Local Governments

• Municipal: Woven throughout the others.
• County governments: Primarily for governing

Macroeconomics: Understanding the Big Picture

Macroeconomics can be defined as that branch of economic analysis which studies the behavior of not one particular unit, but of all the units combined together. Like the study of a forest, it studies economic phenomena from the perspective of the entire economy or a particular sector of the economy.

Microeconomics: Focus on Individual Entities

Microeconomics, like the study of a tree, studies economic phenomena from the perspective of individual entities.

Economic Growth: Driving National Prosperity

Economic growth is the increase in the goods and services produced by an economy, typically a nation, over a long period of time. It enables wage and income earners, producers, and even macroeconomic planners... Continue reading "Essential Economic Concepts: Macro and Micro Foundations" »

6. Can corruption be beneficial to the economic performance? Some studies have suggested that corruption may be beneficial for the economy. Positive correlation between corruption and economic growth in Asian countries:

• Bureaucrats do not have enough information or are not competent for taking decisions; corruption can result in a competitive sale.
• Innovative and expensive projects have been created through corruption of capital.

7. Possible solutions:

• Access to information / right to information (Transparency)
• Cooperation between Governments (common database)
• Code of Conduct (education on legal base)
• Reveal Information (protected by law and incentives)

Informal Economy:

1. Definition: Set of economic activities, enterprises, jobs, and workers that are

What is Standard of Living?

A person's standard of living is the level of material comfort that they are able to enjoy in terms of the goods and services which they can buy or use.

Understanding Gross Domestic Product (GDP)

The GDP measures the growth of economies over time.

• It can be used to make comparisons between levels of production, income, and spending between countries.

Limitations of GDP as a Measure

GDP is NOT a good measure for several reasons:

• It doesn't take into account the degree of inequality in a society. Although GDP per head in a country might rise over time, prosperity does not necessarily make much difference to the living standards of poorer people.
• GDP simply measures the value of goods produced; it doesn't take into account

Understanding Corporate Structures

Diversification: This occurs when a company offers new products and attempts to enter new markets.

Holding: A parent company buys the shares of its subsidiaries, making the parent the owner. The parent company makes the most important decisions, holding the majority of shares and votes.

Trust: The subsidiaries are the owners of the shares, so the profits are shared among each company. The management of the shares is handled by a board of directors. The companies produce the same or similar products, with the objective of growing as a company and becoming more competitive.

Cartel: Companies that produce the same product sign an agreement to reduce competition. They agree to sell the product at the same price and... Continue reading "Understanding Corporate Structures: Diversification to Transnationals" »

Market Structures

Perfect Competition: many buyers & sellers of a standard product & easy entrance & exit (ex: oranges)

Monopolistic Competition: many buyers & sellers of slightly differentiated products & easy entrance & exit (fast food)

Oligopoly: few businesses and entry to industry is restricted (cars & cellphones)

Monopoly: one business supplies a product w/ no close substitutes (debeers diamonds)

Key Concepts

Entry Barriers: increasing returns to scale, market experience, restricted ownership of resources, legal obstacles, market abuses, advertising

Market Power: a business's ability to affect the price of the product it sells

Revenue

Average Revenue: the extra total revenue earned from an additional unit of output... Continue reading "Understanding Market Structures and Competition" »

Operational Effectiveness (OE) means performing similar activities better than rivals perform them. Operational effectiveness includes but is not limited to efficiency. It refers to any number of practices that allow a company to better utilize its inputs by, for example, reducing defects in products or developing better products faster. In contrast,

strategic positioning means performing different activities from rivals’ or performing similar activities in different ways.

Positioning is rejected by many managers as too static for today’s dynamic markets and changing technologies. Nowadays rivals can quickly copy any market position, and competitive advantage is temporary.

During the last decade, we can see different examples in which values and ethics have been ignored in the financial world.

The risky decisions and lack of values are principal causes of the crisis according to the Larrosiere Report. The lack of values due to wrong incentives of the governors led to a wrong price of the risk and an increase in leverage. There was also a complete lack of transparency.

The increase of the market of derivatives also increased the 'appetite for risk' and investors do not seem to worry about the danger of these decisions or be cheated about them.

The US Congress Report, which was created to examine the collapse of the financial system, concluded that there were big failures in supervision, corporate governance, and... Continue reading "Finance and Ethics: Examining the Impact of Values on the Financial World" »

TEMA 6

Definition of product and the two approaches in product management

A product is a set of physical and psychological features that an individual perceives.

• Focused in the product itself
• Focused on the consumer's needs

List ten of the product decisions and briefly explain what they mean

• Current product positioning
• Brand product positioning
• Identifying target segment
• Modifications and changes in products
• Positioning of product line

Depending on who buys the goods, products can be:

Consumer product:

Industrial product

According to their duration, consumer goods can be:

• Non-durable consumer goods
• Durable consumer goods

That avoids problems arising from negative interpretations of the name in other areas (different countries, regions, languages)

List the main