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

TOPIC 4: PRICING

The Role of Price in Marketing

Price plays a crucial role in generating revenue, establishing a company's desired value proposition, influencing buyer decisions, and reflecting the competitive landscape. It is a dynamic element that can be easily adjusted to define market share and respond to competitor actions. Pricing decisions may involve various levels of management, from executives in small businesses to dedicated teams in larger corporations.

4C's Model of Pricing

The 4C's model considers four key factors that influence pricing decisions:

• Corporation: The company's overall objectives, costs, and profit margins.
• Consumer: Customer demand, price sensitivity, and perceived value.
• Competitors: Competitor pricing strategies and market

The IRPF (Personal Income Tax) is proportional and progressive, meaning that those who earn more, pay more. This is based on tax brackets applied to the taxable base.

Business Aspects: Partnerships, Capital, and Taxation

Key considerations include the number of partners, minimum capital requirements, type of liability, and taxation. It is generally more beneficial to optimize tax strategies.

Freemium Business Model

Freemium is a pricing strategy where a product or service is provided free of charge, but users are charged for additional features, services, or virtual/physical goods. This model has been used in the software industry since the 1980s. A subset used by the video game industry is called free-to-play.

Example: The accountingtools.com website... Continue reading "Understanding IRPF, Freemium, and Marketing Strategies" »

Adam Smith's Core Economic Principles

Adam Smith was a Scottish economist during the 18^th century. In 1776, he published his most influential book, The Wealth of Nations, where he made the first comprehensive examination of the emerging market capitalist system. He laid the foundations of classical free-market economic theory and developed the concept of division of labor. Smith explained how rational self-interest and competition can lead to economic prosperity.

Elements of Commercial Society

Adam Smith addressed two fundamental economic questions: the growth of wealth and its distribution. He provided an analysis of the relationship between three key elements of commercial society:

• Factors of production
• The market
• The state

From this framework,... Continue reading "Adam Smith's Economic Theories: Foundations of Free Markets" »

Unit 1.6: Growth and Evolution

Economies of Scale

• The long-run average costs fall as more output is produced.
• The idea of getting bigger is cheaper.
• When the costs of a business go down as the business grows.

Internal Economies of Scale

• Purchasing: The price is lower if you buy in large quantities.
• Financial: Big businesses are seen as less of a risk than smaller businesses.
• Managerial: They have specialized managers in the different areas which brings costs down as efficiency rises.
• Technical: Only big businesses can afford to buy the best technology, which in the long run brings down costs.
• Marketing: Large-scale businesses are the ones who can afford and spread the cost of the most effective and expensive types of marketing.

External Economies of Scale

• Consumers:

1. Net Income

The net income is rising from 2015 to 2017, which is good. However, net income as a percent of sales rises from 2015-2016, but falls from 2016-2017. Why?

2. Total Revenue

Total revenue is increasing each year from 2015 to 2017, which is good. On a percentage basis revenue increased by 27% from 2015-2016 and accelerated to 31% in 2016-2017, which is very good.

3. Cost of Revenue

Cost of revenue is going up from 2015 to 2017, which is to be expected because revenue is going up. On a percent of sales basis, cost of revenue is going down each year from 67% to 62%, which is very good.

4. Gross Profit

Gross profit is rising over time from 2015 to 2017 which is good. As a percent of sales it is getting better over time, which we expected because... Continue reading "Financial Analysis: Trends and Concerns" »

1929 Crisis: Stock Market Crash

1. The Booming Twenties

• After WW1, a period of peace emerged.
• Countries experienced economic growth.
• The League of Nations aimed to prevent wars.
• The Dawes and Young Plans aided Germany's economic recovery and reintegration into the League of Nations.
• The US provided financial assistance to Europe for post-war recovery.

The US appeared prosperous with high production, wages, and cheap labor. However, many lived in poverty. European countries imposed tariffs on US imports to protect domestic products. Overconfidence led US citizens to borrow money to buy shares, despite low share prices. European countries grew wary of the US.

Germany borrowed heavily for post-war reconstruction, but it wasn't enough. France occupied... Continue reading "1929 Stock Market Crash: Causes and Effects" »

Types of Primary Research Methods

Questionnaires

A questionnaire is a set of questions used to collect data for market research.

Advantages:

• Detailed qualitative information can be gathered.
• Customer opinions can be obtained.
• They can be carried out online.
• Vouchers can be offered to encourage participation.

Disadvantages:

• Inaccurate answers may result from poorly designed questions.
• Can be time-consuming and expensive.
• Collating and analyzing answers is time-consuming.

Online Surveys

Online surveys require the target sample to answer questions over the internet.

Advantages:

• Quicker response times.
• Cheaper than interviews or postal questionnaires.
• Easy for participants to complete.
• Data can be quickly analyzed using IT tools.

Disadvantages:

• Lack of an interviewer

PROFORMA INVOICE

It is a document without taxes value, the seller provides it to the buyer, contains most of the necessary information about an international operation. If the buyer accepts, it is understood that the buyer accepts and confirms the information indicated on it.

Freight Transportation Fundamentals

Importance of an Effective Transportation System

• Greater competition
• Economic Scale
• Reduced price

Service Choices and Their Characteristics

• Price
• Transit time and variability
• Loss and damage

Transportation Rate Profile

1. Volume related rates
2. Distance-related rates
   • Uniform rates
   • Proportional rates
   • Tapering rates
   • Blanket rates: meet the rates of competitors
3. Demand-related rates: Transportation rate is set by competitor

Transportation Charges

• Line-haul rate
  • By products
  • By shipment size
  • By route
  • Miscellaneous rates
• Special service

Line-Haul Rates

1. By products
   • Classification system was devised (T 6.4)
   • Class rates: once a product has a freight classification, line-haul charges can be determined. Zip codes are used for the location (T 6.5)
   • Break