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

Game Theory Fundamentals

Game Theory is a simplified model approach used to formalize conflict in terms of a game. It formalizes conflict situations between two parties, taking into account their actions and reactions. It offers a promising approach to analyze competitive situations that can be formally translated into the categories of this theory.

Core Components of a Game

The games consist of:

• A set of players.
• A set of strategies.
• The payoffs to each player for every possible combination of their strategy choices.

Both players typically make their decisions simultaneously, without knowing the other player's decision.

Key Equilibrium Concepts

Dominant Strategy and Pareto Efficiency

A dominant strategy is the best possible payoff for a player, no matter... Continue reading "Game Theory Fundamentals: Strategies, Equilibrium, and Market Models" »

The seven principles stated on the article are:

1.)Price stability provides substantial benefits

Low and stable inflation prevents overinvestment in the financial sector which otherwise would be a way to escape the costs of inflation. It lowers uncertainty enabling businesses and individuals to make appropriate decisions, increasing economic efficiency and finally lowers distortions from interactions between the tax systems and inflation (Better employment of resources and increase economic growth).

2) Fiscal policy should be aligned with monetary policy;

Large government deficits place pressure on monetary authorities to monetize debt, producing rapid money growth and inflation.

3) Time inconsistency is a serious problem to be avoided;

Motivation... Continue reading "Principles of Monetary Policy and the Fed's Performance" »

Customer Service

Importance

One of the objectives of a company is customer loyalty and customer satisfaction.

It is more expensive to get new customers than to keep those you have.

Principles of Customer Service

• Customers are the most important individuals.
• The company depends on customers (not the other way around).
• Companies exist because customers exist; customers are our "work".
• Customers seek a good or service that should be provided.
• Customers are not a number; they must be treated with respect.
• The customer is the backbone of the company.

Customer Service Department

The entire staff should be involved in providing adequate customer care.

They don't only handle complaints, but also gather information through claims or suggestions.

It should provide:

Essential Cost Management Principles

Core Concepts for Multiple Choice

Cost Driver Concept

A cost driver is any factor or activity that has a direct cause-effect relationship with the resources consumed.

Flow of Overhead Costs in ABC

Understand the flow of overhead costs in an Activity-Based Costing (ABC) system:

1. Identify and classify the activities involved in the manufacture of specific products and assign overhead cost pools.
2. Identify the cost driver that has a strong correlation to the costs accumulated in each cost pool.
3. Compute the activity-based overhead rate for each cost pool.
4. Allocate overhead costs to products using the overhead rates determined for each cost pool.

Most Difficult Product Cost to Compute

Of the three product costs, manufacturing

Types of Inventory Costs

Ordering Costs (Setup Costs, Replenishment Costs): Expenses incurred every time an order is placed.

• Examples: Order processing fees, clerical costs for invoice processing, amortization of the EDI system.

Carrying Costs (Holding Costs): Costs associated with storing inventory.

• Examples: Storage space rental, insurance, utilities, and inventory management software.

Stock-out Costs (Shortage Costs): Expenses arising from inventory shortages.

• Examples: Lost sales, expedited shipping costs, and damage to customer relationships.

III. Inventory Cost: Ordering Costs

1. Order Processing Costs

• Fixed cost, independent of the order quantity.
• Includes fees for placing orders, clerical costs for invoice processing, and amortization of the

The Money Multiplier

With just a little mathematical manipulation, we can express the real-world money multiplier (m) as a function of the required reserve ratio (RRR), the excess-reserves ratio (ER/D), and the currency-deposit ratio (C/D). To find m, all we need are the values of the C/D and ER/D ratios. (We already know that RRR = .10, or 10%.) Alternatively, we could compute m with values for C, D, and ER.

Studying the multiplier effect is crucial because, unlike what basic economics states, the money supply is not fully controlled by the Fed. Instead, the Fed does have access to the monetary base, but the multiplier effect will depend on the monetary decisions of financial institutions and the general public.

Factors Affecting the Money Multiplier

Several... Continue reading "The Money Multiplier: Factors and Effects" »

Tax burden/ratio and tax structure

The OECD (Organisation for Economic Co-operation and Development) Classification of taxes

1000 Taxes on income, profits and capital gains

1100 Taxes on income profits and capital gains of individuals

1200 Corporate taxes on income, profits and capital gains

2000 Social security contributions

2100 Employees

2200 Employers

2300 Self-employed or non-employed

3000 Taxes on payroll and workforce

4000 Taxes on property

4100 Recurrent taxes on immovable property

4200 Recurrent taxes on net wealth

4300 Estate, inheritance and gift taxes

4400 Taxes on financial and capital transactions

4500 Other non-recurrent taxes on property

4600 Other recurrent taxes on property

5000 Taxes on goods and services

6000 Other taxes

Tax base of direct... Continue reading "Understanding Tax Burden and Structure: OECD Classification" »

Government's Role in the Economy

One of the roles of most governments is to provide a range of public services. This might include:

• Healthcare
• Education
• Defence
• Care for the elderly
• Child protection
• Policing
• Refuse collection
• Judicial system
• Transport networks

Taxation and Fiscal Policy

The money raised from taxation is used by a government to help fund its spending on public services. Businesses and individuals pay taxes.

Types of Taxation

• Indirect Taxes: Levied on spending, e.g., Value Added Tax (VAT) paid when buying goods and services.
• Direct Taxes: Charged on income, e.g., income tax, corporation tax.

Fiscal Policy Defined

Fiscal policy involves using changes in taxation and government expenditure to manage the economy.

Government Influence on Business

What is Net Worth and Why is it Important for Businesses?

Net worth represents the difference between a person's or corporation's assets and liabilities. It serves as a crucial indicator of a company's financial health, offering a snapshot of its current financial standing.

Understanding Your Net Worth

Knowing your net worth is essential as it helps identify areas of excessive spending. The ability to afford something doesn't necessitate its purchase. To prevent unnecessary debt accumulation, differentiate between needs and wants before making purchases.

Exploring the SEIS Program

The Seed Enterprise Investment Scheme (SEIS) is a UK government program designed to assist startups in raising capital. It aims to stimulate economic growth by promoting... Continue reading "Understanding Net Worth and Its Importance for Businesses" »