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

Section 1: Collecting and Organizing Information

Accounting is an information system that reports on the economic activities and financial condition of a business or other organization.

1.1 Identifying the Ways Accounting Benefits Society

Accounting provides information that helps answer questions such as:

• How should society allocate its resources?
• Should we spend more money to harvest food or cure disease?
• Should we build computers or cars?
• Should we invest money in IBM or General Motors?

Market-Based Allocations

A market is a group of people or entities organized to exchange items of value. Common terms for the added value created in the transformation process include profit, income, and earnings.

Financial Resources

Businesses need financial resources... Continue reading "Accounting: An Information System for Resource Allocation" »

Concepts and Principles

Primary Objective of SME Financial Statements

What is the primary objective of financial statements of SMEs? To provide information about the financial position, performance, and cash flows of the entity that is useful for economic decision-making by a broad range of users who are not in a position to demand reports tailored to meet their particular information needs.

Qualitative Characteristic: Reliability

What does the qualitative characteristic “reliability” mean? Information presented in financial statements should be free from material error and bias and ensure a faithful representation of the economic phenomenon.

True Statements About Financial Position

Which of the following statements are true?

• The financial position

Development Charges

Development charges are fees imposed by local governments to offset the costs associated with new construction projects and their impact on public services. These charges help fund off-site improvements and cover expenses related to building inspections.

Property Tax Benefits

Property taxes offer several advantages as a source of revenue for local governments:

• Stable Source of Revenue: Property taxes provide a consistent and predictable income stream.
• Exportable Reach: Non-resident property owners who benefit from local services also contribute to the tax base.
• Equitable Financing: Property taxes support property-related services like police, fire protection, and infrastructure development (streets, sidewalks, storm drainage).

Job Analysis

Job analysis is the systematic process of determining the skills, duties, and knowledge required for performing jobs in an organization.

A job consists of a group of tasks that must be performed for an organization to achieve its goals. A position is the collection of tasks and responsibilities performed by one person;

Job analysis is performed on three occasions: (1) when the organization is founded and a job analysis program is initiated for the first time; (2) when new jobs are created; and (3) when jobs are changed significantly as a result of new technologies, methods, procedures, or systems.

The Job Description

The job description is a document that provides information regarding the essential tasks, duties, and responsibilities... Continue reading "Understanding Job Analysis and Job Descriptions" »

Small Business Criteria and Economic Contributions

A small business is typically defined by the following criteria:

• Financing is supplied by one person or a small group.
• Localized business operations (except for marketing).
• Business size is small relative to larger competitors.
• Fewer than 100 employees.

Economic Contributions of Small Businesses

Small businesses are vital to the economy, demonstrating significant impact:

• Produce 14 times more patents than large company staff, and are twice as likely to turn innovation into market success.
• Account for 50% of the Gross Domestic Product (GDP).
• Create more than 60% of new jobs.
• Account for 44.3% of total payrolls.

Women Entrepreneurs: Growth and Challenges

The role of women in business ownership has expanded... Continue reading "Small Business Fundamentals: Criteria, Strategy, and Ethical Growth" »

1. Sunk Costs

Costs that do not vary according to different decisions

• Eg. A student buys a book for $50 and can sell it for $20. Sunk costs amount for $30
• Eg. Market research, R&D (frequent in IT sector)

Managerial decision-making:

1. Ignore sunk costs and consider only avoidable costs to be very careful before committing to costs that will become sunk, since such commitments cannot be reversed
2. Exploit investments in sunk costs as a way to strategically influence the behavior of competitors

- Major entry barrier because they increase the cost of exit

Relationship between fixed and sunk costs: - sunk costs are the amount of fixed costs that cannot be recouped

2. Incremental Costs

Change in costs between undertaking a course of action and not undertaking... Continue reading "Cost Concepts and Pricing Behavior" »

Globalization: A Shift Towards a More Integrated World Economy

Globalization of Markets

• National markets merge into a single global market.
• Trade barriers are reduced or eliminated.
• Tastes and preferences converge.
• Firms promote the trend by offering the same products worldwide.

Globalization of Production

• Goods and services are sourced from locations around the globe.
• Firms take advantage of national differences in the cost and quality of factors of production (land, labor, capital).

Benefits of Globalization

• Lower prices for goods and services
• Greater economic growth
• Higher consumer income
• More jobs

Critics of Globalization

• Job losses
• Environmental degradation
• Cultural imperialism of global media and multinational enterprises (MNEs)

Factors Driving Globalization

• Declining

Floating Exchange Rate: When a country allows its exchange rate to be determined by currency markets, the exchange rate is said to be floating.

Effects of Fiscal Policy (Floating Rate)

Government Spending Increase (G↑) or Taxes Decrease (↓T) => IS* shifts right (↑) => exchange rate appreciation (e appreciation) => crowds out Net Exports (NX) => no effect on Aggregate Demand (AD) (When the economy is open, capital immediately flows inwards)

Effects of Monetary Policy (Floating Rate)

Money Supply Increase (M↑) => LM* shifts right (↑) => Output (Y) increases (↑), interest rate (r) decreases (↓) => exchange rate depreciation (e depreciation) => Demand (D) increases (↑) for foreign exchange => Net Exports (... Continue reading "Fixed vs. Floating Exchange Rates: Policy Effects" »

Liberalism is a political theory that starts from the idea that the individual and their rights must be at the center of political reflection. Therefore, the State must guarantee a legal framework that protects individual rights, ensures free exchange, and respects the rules of free economic competition. In this way, citizens can pursue their legitimate personal interests without the State interfering in the markets.

Adam Smith and The Wealth of Nations

The Wealth of Nations argues that the welfare and wealth of a society depend on three factors:

1. The pursuit of self-interest. In commercial exchange, the consumer is willing to pay the minimum and the producer wants to earn the maximum; the self-interest of each party helps them reach an agreement

1. Is the DuPont Key Figure System the Only Accepted System With No Disadvantages?

False

While widely recognized, the DuPont system doesn't account for liquidity, a factor often considered more critical than profitability. Focusing solely on profitability as a single objective is a shared limitation of many analytical tools.

2. What's an Advisable Approach to Developing Charts for Reports?

Consider these steps:

1. Statement: Define the message you want to convey.
2. Comparison: Determine the basis for comparison (e.g., time periods, categories).
3. Chart: Select a chart type that best visually represents the data and comparison.

3. What Are the Four Perspectives of the Balanced Scorecard? Explain One Briefly.

The Balanced Scorecard encompasses:

1. Financial: Focuses