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

Perfect Competition: Meaning and Definition

A perfectly competitive market is one with a large number of buyers and sellers, all trading a homogeneous product without artificial restrictions, and possessing complete market knowledge.

In other words, a market is considered perfect when all potential buyers and sellers are immediately aware of transaction prices. Under these conditions, the price of the commodity tends to equalize across the market.

As Mrs. Joan Robinson stated, "Perfect competition prevails when the demand for the output of each producer is perfectly elastic."

According to Boulding, "A perfectly competitive market may be defined as a large number of buyers and sellers all engaged in the purchase and sale of identically similar commodities,... Continue reading "Perfect Competition: Definition, Characteristics, and Examples" »

The Costs and Benefits of Home Ownership

The recent financial crisis forced a critical reevaluation of home ownership. This analysis addresses three key questions:

• What are the costs and benefits of owning a house?
• How has the recent financial crisis affected the net dollar value of home ownership?
• What regulations should policymakers implement following the crisis?

The Impact of the 2008 Housing Crisis

During the recent financial crisis, homeowners found themselves in a very tough situation. After the housing bubble popped, house prices fell severely. Even though the market has recuperated somewhat since 2008, the net value of owning a house has not been the same since the crisis.

Many homeowners experienced negative equity, meaning the remaining... Continue reading "Financial Impact of the Housing Crisis on Home Equity and Regulation" »

As the number of eCommerce sites grows each day, more and more people prefer to shop online for convenience, choice, and ease of price comparison. The online shopping experience is now easier than ever before.

Benefits of Online Shopping

On the one hand, the vast majority of online stores offer prices that are much lower than what you will find in a physical store. There are several good reasons for this.

Most physical stores have a restricted array of services and products. They can only carry a limited number of items, and there are many policies affecting access to services and products. As an example, there may be a certain item that is only available to those versions of the business that you can get from the mall.

Shopping online enables... Continue reading "Pros and Cons of Online Shopping: A Detailed Analysis" »

Types of Negotiation

• Distributive Negotiation: Parties compete to determine a fixed sum of value. The focus is on who will claim the most value (win-lose scenario).
• Integrative Negotiation: Parties integrate their interests into an agreement, aiming for a mutually beneficial outcome (win-win scenario).
• Multi-Phase Negotiation: Negotiation takes place over several sessions or phases.
• Multiparty Negotiation: At least two negotiators in each group, and there can be more than two groups involved.

Distributive Negotiation

Getting the Other Side on the Table

1. Offer Incentives: Such as money, time, service, or support.
2. Put a Price on the Status Quo: Highlight the costs or disadvantages of not negotiating.
3. Enlist Support: Use allies to facilitate communication.

Cash Flows and Dividends

1. Norris Company Dividends: Norris Company declared cash dividends of $60,000, payable as follows: $20,000 at the beginning of the year and $25,000 at the end of the year. (Calculation: $60,000 + $20,000 = $80,000; $80,000 - $25,000 = $55,000)

2. Indirect Method Cash Flow Statement: On the statement of cash flows prepared by the indirect method, the amortization of premium or discount on bonds payable is added back to net income.

8. Cash Receipts from Issuance: Cash receipts received from the issuance of stock are classified as financing activities.

11. Ten-Year Bond Issuance: A ten-year bond issued at par for $250,000 cash is classified as a financing activity.

17. Inflow of Cash: Issuance of long-term debt represents... Continue reading "Accounting Principles and Financial Statement Analysis" »

Core Financial Definitions

• Opportunity Cost: The difference in return between an investment one makes and another that one chose not to make.
• Risk: The possibility that the actual return on an investment will be different from its expected return. A vitally important concept in finance is the idea that an investment that carries a higher risk has the potential for a higher return.
• CAPM: A financial risk model used by analysts in their valuation process (Expected Return = Risk-Free Rate + Specific Stock Beta × Equity Risk Premium).
• DCF: Techniques used by investment bankers for merger and acquisition analysis, Wall Street traders to value all types of debt obligations, and Wall Street analysts to value stock.
• Free Cash Flow to the Firm (FCFF): The

Decision Trees: Excellent tools for choosing between courses of action. They help form a balanced picture of risks and rewards for each option.

Capital Markets: Markets where governments or companies raise money (capital) to fund operations and long-term investments. Selling bonds and stocks are two ways to generate capital.

Primary vs. Secondary Markets:

In the primary market, securities are first issued to investors through an initial public offering (IPO). Investment banks assist with IPOs by guaranteeing a minimum price before selling to the public.

The secondary market—where people buy and sell previously issued securities—includes stock exchanges, bond markets, and other entities that trade financial instruments. Securities trade based... Continue reading "Financial Markets: Capital, Money, and Investment Banking" »

2011 Financial Crisis: Regulatory Failures

The 2011 autopsy revealed widespread failures in regulation and unethical behavior at all levels. Excessive risk-taking occurred on both Wall Street and Main Street. The blame game involves several key players:

• Mortgage brokers: Made loans to people who could not pay and sometimes lied about borrowers’ ability to pay.
• Homeowners: Borrowed more than they could repay and sometimes lied about their income.
• Lenders (Banks and S&Ls): Engaged in excessive risk-taking, made loans to unqualified borrowers, and failed to verify repayment ability.
• Investment bankers: Misrepresented the quality of mortgages to investors, used faulty data to assess risk, and pressured lenders for more mortgages.
• Big investors:

Human Resource Management (HRM)

Core Functions of HRM

Staffing

The staffing process ensures an organization has the right number of employees with the appropriate skills in the right jobs at the right time. It involves:

• Job analysis: Determining the skills, duties, and knowledge required for jobs.
• Human resource planning
• Recruitment: Attracting qualified candidates.
• Selection: Choosing the best candidate for the position.

Performance Management

Performance management is a goal-oriented process that maximizes employee, team, and organizational productivity.

Human Resource Development

This function encompasses:

• Training and development
• Career planning and development
• Organization development
• Performance management and appraisal

Compensation

Compensation provides... Continue reading "Human Resource Management: Essential Functions and Practices" »

TOPIC 7: INTRODUCTION TO OPTIONS AND FUTURES

1. INTRODUCTION TO DERIVATIVES

Definition: financial instrument whose payoffs and values are derived from / depend on something else. Goals:

• To illustrate the economic function/application of derivatives
• Understand how derivative markets are organized
• Be aware of the main derivative markets

Risk: The chance that an investment's actual return will be different than expected. Risk includes the possibility of losing some or all of the original investment.

Types:Market risk: Change in the value of an asset due to changes in exchange rates, interest rates, inflation rates, bond prices, equity prices, or commodity pricesCredit risk: The other party fails to meet the agreed conditions (payments and dates). Example:... Continue reading "Introduction to Derivatives: Types, Risks, and Markets" »