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

Understanding Organizations

An organization is a tool used by people to coordinate their actions to obtain something they desire or value, while attempting to fulfill a common goal.

Organizations are a response to and a means of satisfying human needs. They provide goods and services, employ people, and bring together people and resources to produce products. Ultimately, organizations exist to create value.

Why Do Organizations Exist?

People working together to produce goods and services create more value than people working alone. Organizations exist for the following reasons:

• Increase specialization and the division of labor: Division of labor allows for specialization, enabling individuals to become experts at their jobs.
• Use large-scale technology:

Charts and Graphs

• Pie chart
• Line graph
• Bar chart
• Table
• Flow chart
• Organigram

Types of Lines in Graphs

• Solid line
• Curve
• Fluctuating line
• Dotted line (puntos)
• Axis
• Undulating line
• Broken line

Describing Trends: Increase

• To increase = raise (aumentar)
• Rise = go up (subir)
• Grow
• Boom / soar / climb (remontar)
• Jump = skyrocket (dispararse)
• To reach a peak (pico)

Describing Trends: Decrease

• To decrease
• Fall
• Plunge (picado)
• Drop
• Go down
• Decline
• Collapse

Describing Trends: Stability

• To remain stable
• Stay constant
• Stabilize

Describing Trends: Leveling Off

• To level off / out = flatten out (nivelar)
• Stop or start falling / rising

Trend Modifiers: Size

• Dramatically
• Vastly
• Hugely
• Significantly
• Considerably
• Slightly (leve)

Trend Modifiers: Speed

• Substantially
• Rapidly
• Suddenly
• Gradually

Incoterms

• EXW: Ex

Loan Types and Capital Cost Analysis

Understanding Loan Structures

American Loans Explained

In American loans, all intermediate payments only include interest expenses. The principal is paid back at maturity.

C − Fees = I = ∑T_i · C_o + C_o

_{o o j=1} (1+R_B)^j (1+R_B)^T

French Loans Explained

The loan is repaid with equal payments (P), which include both interest and partial repayment of the principal. The process requires three steps:

1. Calculate the constant payment per period ‘P’.
2. With the computed value ‘P’, calculate the cost of debt.
3. Compute the effective annual rate.

The Cost of Equity Capital

Firms with excess cash can either pay a dividend or make a capital investment. Because stockholders can reinvest the dividend in risky financial assets,... Continue reading "Financial Valuation: Loan Structures and Equity Cost Models" »

E-commerce Fundamentals

Payment Methods for Online Shoppers

Online shoppers commonly use a credit card or a PayPal account to make payments. Other alternative methods include:

• Billing to mobile phones
• Cash on delivery (COD)
• Check
• Debit card
• Electronic money
• Gift cards
• Postal money order
• Invoice

Product Delivery Options

• Downloading (for music, movies, images, etc.)
• Drop shipping (the manufacturer ships the item directly to the consumer)
• In-store pick up (collecting items at a physical shop)
• Printing or by e-mail (tickets for concerts, cinema, etc.)

Market Share and Statistics

E-commerce represented 8% of sales in the USA. In 2012, there were 242 million people shopping online in China.

Advantages of E-commerce

• Convenience

  Online shops are usually available 24 hours

The Great Depression: The Longest and Deepest Economic Downturn in American History

Causes of the Great Depression

In 1929, the prevailing economic theory held that the economy possessed self-correcting mechanisms that would prevent a severe depression. However, the Great Depression defied these expectations.

• Overproduction: Some economists believed the depression was caused by an excess of goods and services.
• Lack of Investment Opportunities: Others pointed to a decline in profitable investment opportunities.
• Technological Innovation: Joseph Schumpeter argued that the failure of entrepreneurs to introduce new products contributed to the depression.
• Stock Market Crash and Bank Panics: The stock market crash of 1929 and subsequent bank failures exacerbated

Understanding Global Inequality: Thomas Piketty's Capital in the 21st Century

The Inequality Problem: R > G

Thomas Piketty's research on inequality has gained significant attention, particularly his formula r > g, where:

• r represents the return on capital (profits or interest from investments)
• g represents the overall growth of the economy

Piketty argues that over time, wealth concentrates in the hands of the wealthy few, regardless of hard work or intelligence. The actual distribution of wealth reveals higher inequality rates than commonly perceived. To combat this, he advocates for active redistribution and improved access to education.

Capitalism and Inequality

Piketty's book, Capital in the 21st Century, challenges the notion that capitalism... Continue reading "Understanding Global Inequality: A Deep Dive into Thomas Piketty's Capital in the 21st Century" »

External Environment Tools

PESTEL Analysis

List of influences on the possible success or failure of strategies:

• Political Factors: Government policies, taxation changes, trade regulations. Zara's corporate social responsibility is transparent; Zara collaborates with communities in its areas of operation and has a code of conduct.
• Economic Factors: Business cycles, interest rates, GDP trends. Zara conducts deep consumer research and acts in a unique way. Export and import concerns affect performance.
• Social-Cultural Factors: Population changes, income distribution. Zara has a good image through donations and charity. Zara embraces diverse cultures, and its brand is known worldwide.
• Technological Factors: ICT innovations, new discoveries, and technological

Topic 1: Intro to FAB

Types of Businesses: Manufacturing (make & sell), Merchandising (buy & sell), Services (delivery etc.)

Business Structures: Sole Proprietorship -> owned and opened by 1 person; business is a separate entity from owner, owner is liable for debts. Partnership -> 2 to 20 partners; business is a separate entity from partners, partners are liable for debts.

Types of Partnerships: 1. General -> equal responsibility & unlimited liability. 2. Limited (Liability) -> 1 partner(s) not liable for debts beyond the agreed obligations. 3. Limited Liability Partnership (LLP) -> ≥2 partners are separate legal entities and are not liable for business debts. Business ceases if partner dies UNLESS have perpetual... Continue reading "Understanding Business Structures and Financial Fundamentals" »

The Company Beta (β)

β = Cov(R_i, R_M) / Var(R_M)

Problems of Beta:

1. Betas may vary over time.
2. The sample size may be inadequate.
3. Betas are influenced by changing financial leverage and business risk.

Solutions:

1. Problems 1 and 2 can be moderated by more sophisticated statistical techniques.
2. Problem 3 can be lessened by adjusting for changes in business and financial risk.
3. Look at average beta estimates of several comparable firms in the industry.

Stability of Beta

Most analysts argue that betas are generally stable for firms remaining in the same industry, but they can change due to:

• Changes in product line
• Changes in technology
• Deregulation
• Changes in financial leverage

Using an Industry Beta

It is frequently argued that one can better estimate a firm's beta... Continue reading "Understanding Beta in Finance: Calculation, Stability, and Determinants" »

Utopia sets Ethical Objectives to:

to enhance the brand's image/reputation

to build brand preference and loyalty

to avoid legal problems

to reduce the risk of negative publicity

to motivate employees

to increase profits

overall customer satisfaction.

Utopia Implements Corporate Social Responsibility Strategies

to act as a good corporate citizen. There are many benefits of CSR for Utopia:

• The image of the business and its products can be improved with a socially responsible approach. This could become an advantage, attracting new customers and loyalty from existing customers

• attracting the best motivated employees as many workers will prefer to work for and be associated with socially aware business

• socially irresponsible behavior by Utopia could lead to