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

Introduction

More Supermarket is a well-established chain with a strong reputation for quality and value. However, recent market research has shown that the brand has a particularly low rating among consumers aged between 18 and 25. This age group associates the brand with older generations and finds it to be outdated and unappealing.

In order to change young consumers' perception of More and increase sales among this age group, we propose the following concrete measures:

1. Partner with local universities and colleges

Young adults are busy and often on a tight budget. They appreciate convenience and value for money. One way to make More more appealing to this age group is to partner with local universities and colleges. This could involve offering... Continue reading "Increasing More Supermarket's Appeal to Young Adults" »

Despite all those advantages a wealth tax has, many countries abolished it because of the high cost of implementation and the little revenue it generated. There are high administrative costs and complex annual tax returns linked to the wealth tax, which make it less efficient. Also, sometimes it is quite difficult to measure wealth. Values can be misrepresented and in a lot of cases, it is not possible to know the real value of an asset until it is sold.

Furthermore, the argument of double taxation can be applied to the wealth tax. If wealth is accumulated from salaries, savings, or personal business income, double taxation is likely to happen since these flows in many cases have already been taxed. This argument, though, can be used for almost... Continue reading "The Pros and Cons of Wealth Tax: Efficiency, Double Taxation, and Capital Flight" »

One of the dynamic gains from trade is the diffusion of technological advance. Can you explain this gain and the impact on domestic companies? 10 points.

The dynamic gains refer to the relationship between trade and economic growth. The economy experiences increases in its stock of productive factors because a technological innovation helps a country's existing stock of factors to become more efficient. This means in our model the PPF has a growth.

The United States has used quotas to protect its domestic sugar industry. What has been the likely impact of these quotas on the world price of sugar (relative to the price that would exist under free trade)? 10 points.

Quotas restrict the amount of foreign competition in the marketplace, so that means... Continue reading "Understanding Trade Dynamics and Policies Impact" »

Concentration Strategies

Horizontal Growth

Expansion of operations into other geographic locations and/or increasing the range of products and services offered to current markets.

Horizontal Integration

The degree to which a firm operates in multiple geographic locations at the same point on an industry’s value chain.

Diversification Strategies

Concentric (Related) Diversification

Growth into a related industry when a firm has a strong competitive position but attractiveness is low.

Synergy

The concept that two businesses will generate more profits together than they could separately.

Retrenchment Strategies

Retrenchment Strategies Defined

Used when the firm has a weak competitive position in some or all of its product lines due to poor performance.

Turnaround

Technique No. 2: Business Model Ideation

Mapping an existing business model is one thing; designing a new and innovative business model is another. Ideation is the process for generating a large number of business model ideas and successfully isolating the best ones. Today, different business models compete in the same markets, and boundaries between industries are blurring—or disappearing altogether.

One challenge we face when trying to create new business model options is ignoring the status quo and suspending concerns over operational issues so that we can generate truly new ideas. Business model innovation is not about looking back, because the past indicates little about what is possible in terms of future business models. Business model... Continue reading "Business Model Ideation: Generating Innovative Concepts" »

Monopoly

A monopoly exists when a firm is the sole seller of a product without close substitutes.

How Monopolies Arise

1. Natural Monopoly: Economies of scale allow only one firm to produce the entire output at the lowest average cost.
2. Control of Resources: Ownership or control of essential raw materials or unique production techniques.
3. Legal Protection: Patents, copyrights, and trademarks grant exclusive production rights.

Public Policies Against Monopoly

1. Competitive Legalisation: Banning anti-competitive pricing strategies like price fixing, predatory pricing, or price gouging.
2. Public Ownership: Government operation of a private monopoly.

Price Discrimination

Price discrimination occurs when a firm charges different prices for the same product to different... Continue reading "Monopoly, Monopolistic Competition, and Price Discrimination in Economics" »

MARKET VALUE PERFORMANCE MEASURES

MVA

Market Capitalization = (#shares * price per share) - Equity

MTBR

Measures how much value has been added for each dollar that shareholders have invested = MVOEQUITY / BVOEQUITY

MEASURING PROFITABILITY

EVA

Economic Value Add or Residual Income = The profit after deducting all costs including the cost of capital = After-tax operating income (after tax interest + NI) - (cost of capital * total capitalization at the start of the year) = ((1- tax rate)(interest expense) + NI) - (cost of capital)(long term debt + total equity beginning of year)

ROE

NI / Equity start

ROA

(1-tax rate) * interest expense + NI / Total Assets start

ROC

(1- tax rate) * interest expense + NI / LTD start + Equity start

MEASURING EFFICIENCY

How effectively... Continue reading "Financial Performance Measures and Analysis" »

The organizational structure is the framework of hierarchy, relationships, responsibilities, and information flow within a firm. It is shaped by several factors, including company size, international orientation, the number and consistency of product lines, and expansion plans.

Defining Organizational Structure

Dimensions of Activity and Responsibility

• Horizontal: Focuses on the division of *activities*.
• Vertical: Pertains to *authority* and *hierarchical relations*.

Key Organizational Structures for International Operations

Functional Structure

A functional structure groups each portion of the organization according to its purpose, such as a marketing department, a sales department, or a production department.

Export Department

Companies typically... Continue reading "Global Business Organizational Structures" »

Understanding Poverty

Defining Poverty

Relative poverty refers to economic inequality within a society. Individuals or groups experiencing relative poverty have less access to goods and services compared to others.

Absolute poverty signifies the lack of resources to meet basic human needs, such as water, food, sanitation, shelter, clothing, and education.

People Affected by Poverty

Individuals facing poverty often experience disadvantages, including limited access to quality education and increased health risks.

Causes of Poverty

1. Unemployment or Underemployment: Lack of sufficient work opportunities to earn a living wage.
2. Old Age: Insufficient income after retirement.
3. Ill Health: Mental and physical health issues can hinder employment and increase expenses.

Financial Analysis Techniques

Sensitivity Analysis

• Considers changes in variables, only one change in each simulation.
• Provides a tool to answer “what if” questions.
• By comparing changes in different variables, we can assess project risks and make decisions accordingly.

Scenario Analysis

• Considers changes in two or more variables simultaneously.
• Allows consideration of the best and worst-case scenarios.
• Requires a large number of simulations.
• By comparing different scenarios, we can assess project risks.

Break-Even Analysis

• The Break-Even point is the level of sales that offsets all costs.
• It can be calculated in terms of profit or cash flow.
• It must assume a certain sales mix if the product contributions are different.

Monte Carlo Simulation

• Statistical