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

Minimum Level or Safety Stock

The minimum level is the minimum quantity of the material which must be maintained in hand at all times. The quantity is fixed so that the production is not held up due to shortage of the materials. In fixing this level, the following factors should be considered:

• Lead time i.e. time lag between indenting and receiving of the material. It is the time required to replenish the supply.
• Rate of consumption of the material during the lead time.
• Nature of the material. Minimum level is not required in case of a special material which is required against customer’s specific order.

Maximum Stock Level

It is the maximum of stock which should be held in stock at any time during the year. The quantity is fixed so as to avoid... Continue reading "Inventory Management Techniques and Time-Keeping Methods" »

Network Industries

For almost a century, network industries were organized as state monopolies. Because of the importance of these industries from general viewpoints, governments believed it was essential to consolidate them in one firm due to strategic economic and political reasons. Consumer organizations started to complain about the poor performance of public monopolies; they claimed that competition was the best way to induce better prices, improve quality of service, and stimulate innovation.

Natural Monopoly is a type of monopoly that exists as a result of the high fixed or startup costs of operating a business. Universal Service Obligation (USO) refers to a service provided to everyone irrespective of their location at an affordable rate... Continue reading "Understanding Network Industries and Their Evolution" »

Monopolistic Competition and Trade

Market Dynamics and Firm Exit

2) In the model of monopolistic competition, if firms have different average cost curves, then opening trade will cause less efficient firms to exit the industry.

Industry Output and Demand

5) In the model of monopolistic competition, an increase in industry output will cause individual firms' demand curves to become flatter, which will reduce demand for higher-priced goods and increase demand for lower-priced goods.

7) In the model of monopolistic competition, an increase in industry output will reduce market shares and reduce profits of producers of higher-priced goods and will increase market shares and increase profits of producers of lower-priced goods.

Trade Costs

3) In the model... Continue reading "International Trade and Monopolistic Competition Exam Review" »

CHAPTER 14: Material Requirements Planning (MRP)

Independent vs. Dependent Demand

Independent Demand

Finished goods, such as computers, have independent demand, meaning their demand is uncertain and influenced by external factors.

Dependent Demand

Components of finished products, like computer parts, have dependent demand, meaning their demand is certain and directly related to the demand for the finished product.

What is Material Requirements Planning (MRP)?

Material Requirements Planning (MRP) is a dependent demand technique that uses a bill-of-material, inventory data, expected receipts, and a master production schedule to determine the materials and components needed to produce finished goods.

Benefits of MRP

• Better response to customer orders
• Faster

Selecting and Managing Entry Modes

Foreign market entry options are categorized into three primary methods, each with distinct subtypes:

• Trade: Export, import, and countertrade.
• Contract: Licensing, franchising, management contracts, and turnkey projects.
• Investment: Wholly owned subsidiaries, joint ventures, and strategic alliances.

Exporting and Importing

These represent the most common methods of buying and selling internationally.

Developing an Export Strategy

• Identify potential markets.
• Match needs to organizational abilities.
• Initiate meetings.
• Commit necessary resources.

Direct vs. Indirect Exporting

• Direct Exporting (Selling to buyers): Utilizing sales representatives or distributors.
• Indirect Exporting (Selling to intermediaries): Utilizing agents,

Economic Integration

Trade creation occurs when members of an economic integration group begin focusing their efforts on those goods and services for which they have a comparative advantage and start trading more extensively with each other. Trade creation results in efficient, low-cost producers in member countries gaining market share from high-cost member producers, as well as generating increased exports. These results occur because the efficient regional producers are able to offer lower prices and higher quality output than their competitors inside and outside the group.

Trade diversion occurs when members of an economic integration group decrease their trade with non-member countries in favor of trade with each other. One common reason... Continue reading "Economic Integration: Trade Creation and Diversion" »

1- Intermediaries: Buy products from manufacturers and resell them to consumers.

Import Quota Effects

3) An import quota will increase producer surplus, decrease consumer surplus, have no effect on government revenue, and have an ambiguous effect on overall domestic national welfare.

C) increase; decrease; have no effect on; have an ambiguous effect on

Voluntary Export Restraint Effects

4) A voluntary export restraint will increase producer surplus, decrease consumer surplus, have no effect on government revenue, and decrease overall domestic national welfare.

D) increase; decrease; have no effect on; decrease

Export Tariff Effects with Imperfect Competition

1) If an import-competing firm is imperfectly competitive, then under free trade an export tariff will increase domestic market price, have no effect on producer surplus,

Three Types of Foreign Direct Investment (FDI)

Foreign Direct Investment can be categorized into three main types:

• Market Seeking: FDI is driven by the desire to be closer to customers. Proximity reduces transportation costs and potentially tariffs. Firms weigh the benefits of FDI against exporting, where production is concentrated in one location.
• Efficiency Seeking: Upstream and downstream products are manufactured in different locations, leveraging factor intensity and factor prices. This strategy aims to optimize production costs.
• Resource Seeking: FDI provides access to scarce resources. Output from resource-seeking FDI is seldom sold in the host country market.

Consequences of FDI for Host Countries

FDI can have several effects on host countries,... Continue reading "Foreign Direct Investment, Trade Theories, Barriers" »

Assignment 5