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

What is Wall Street?

It is the American stock market.

How the Stock Market Works

To set up a company, you need capital. This capital is raised from investors (called shareholders because, in return, the investors own a share in the company), who then get their money back either through receiving dividends on the shares or through selling their shares. Investors buy and sell their shares on the "stock market."

How Shares Work

The value of shares is higher when the company is successful. When more people buy rather than sell shares, their price goes up. But when it is the other way around, the price falls.

Causes

Speculation

Investment on the stock market was attractive during the economic boom since the economy was doing well and people... Continue reading "Wall Street Crash of 1929: Causes and Market Collapse" »

The Great Depression

At the end of the 1920s, a series of problems in the USA caused a major economic crisis, known as the Great Depression. This crisis lasted until the end of the 1930s and brought an end to the prosperous, consumer lifestyle of the previous decade.

USA Crisis: Triggers of the Depression

The problems that led to the crisis in the USA included:

• Overproduction: American industry produced more goods than the population needed. When companies could not sell their products, they went bankrupt and had to close.
• Falling Consumption: When companies closed down, people lost their jobs and stopped spending money. Rising unemployment reduced demand. As a result, more and more companies went out of business.
• The Wall Street Crash: When many

1. What is economic competition?

The set of actions that undertakings (companies) take to obtain the preference of consumers, these actions include rivalry among companies and are only feasible because there are conditions that facilitate open and participative markets.

2. Mention and describe at least three negative effects that occur in markets when there are no conditions of effective competition.

• There are no alternatives in goods and services
• High prices
• There is no innovation, which causes inefficiency

3. What is the difference between economic regulation and the correct policy of economic competition? Describe at least two differences.

Regulation: Preserve the most valued elements by a given group through mechanisms of standard setting, information... Continue reading "Understanding Economic Competition: Effects, Regulation, and Characteristics" »

Travel Agencies

Definition and Functions

A travel agency is a business that sells travel services like tours, cruises, transportation, accommodation, meals, and sightseeing to the public. It utilizes management practices such as division of labor and hierarchical authority to achieve its objectives, including customer satisfaction and profit generation. Acting as a representative of airlines, hotels, tour companies, and cruise lines, travel agencies cater to both leisure and business travelers.

Expert Advice and Packages

Travel agents provide valuable advice to tourists regarding climate, local culture, customs, and other essential information. They also play a key role in selling package holidays, drawing inspiration from pioneers like Thomas... Continue reading "The Role of Travel Agencies and Tour Operators in the Tourism Industry" »

Crafting Effective Paragraphs

Organizing Your Ideas

Categorization: One effective way to organize your ideas is by sorting them into categories. If an idea doesn't fit, set it aside for later. As you sort, new ideas may emerge; include them if they are relevant. Consider how one writer organized her thoughts on the topic: "I always liked my aunt Alicia best."

Writing Paragraphs

Each paragraph should revolve around one central, controlling idea, often expressed in a topic sentence. Supporting details then develop this main idea by providing evidence, clarification, or elaboration.

Topic Sentences

A topic sentence can be a statement or a question. Regardless of its form, a good topic sentence clearly conveys the main idea and engages the reader. Your... Continue reading "Crafting Effective Paragraphs: A Guide to Organizing Your Ideas" »

How Does a Bank Become Established?

Starting a bank involves a long organization process that could take a year or more, and permission from at least two regulatory authorities. Extensive information about the organizer(s), the business plan, senior management team, finances, capital adequacy, risk management infrastructure, and other relevant factors must be provided to the appropriate authorities.

How Can Commodity Money Provide a Measure of Value?

Commodity money provides a measure to value other goods and services. One service might be worth one pound of tobacco, while another service might be worth more or less.

What Is a State-Chartered Bank?

A chartered bank is a financial institution whose primary roles are to accept and safeguard monetary... Continue reading "Banking Fundamentals: Money Systems and Regulations" »

Financial Leverage and Cost of Capital

1. Financial Leverage: Effect on Risk and Return

The capital structure that produces the highest firm value is the one that maximizes shareholder wealth.

Example: Trans Am Corporation currently has no debt in its capital structure and is considering issuing debt to buy back some of its equity.

For an all-equity firm, assets equal equity, meaning Return on Assets (ROA) is equal to Return on Equity (ROE):

• ROA = EBIT / Assets
• ROE = (EBIT - Interest) / Equity

Earnings per share (EPS) is calculated as:

EPS = Earnings / Number of shares outstanding

ROA is identical across economic states because it is calculated before interest. The effect of financial leverage depends on the company’s earnings before interest (EBIT)... Continue reading "Financial Leverage and Cost of Capital Analysis" »

LFCE Criteria for Substantial Power Determination

The LFCE proposes several criteria for determining substantial market power:

• Market share and the ability to fix prices unilaterally without competitors being able to counter such power.
• The existence of barriers to entry.
• The existence and power of competitors.
• The possibilities for the Economic Agent(s) and their competitors to access input sources.

Efficiency Gains Under LFCE Article 55

Article 55 of the LFCE defines efficiency gains. Some examples include:

• The introduction of new goods or services.
• The utilization of residual lots, defective, or perishable products.
• Cost reductions resulting from creating new techniques and production processes, asset integration, increases in production scale, and

Definition of Economics

Wealth Definition, Welfare Definition, Scarcity Definition, and Growth Definition

Managerial economics focuses on applying business principles and methodologies to decision-making within a firm or organization, particularly under uncertainty. It aims to establish rules and principles that help achieve desired economic outcomes related to costs, revenue, and profits, which are crucial for both business and non-business entities. Managerial economics explores how to effectively allocate scarce resources to achieve managerial goals.

Objectives

The primary objective of managerial economics is to analyze and solve economic problems faced by businesses. Other key objectives include:

1. Integrating economic theory with practical business

Inflation

Inflation is an increase in the average level of prices of goods and services.

Types of Inflation

• Demand-Pull Inflation: This occurs when various factors increase aggregate demand, leading to inflation.
• Cost-Push Inflation: This is a decrease in the supply of goods caused by an increase in the cost of production.

Causes of Inflation

• Increase in the cost of raw materials
• Increase in the cost of inputs (land, labor, capital)
• Increase in the cost of borrowing by producers
• Natural calamities, floods, earthquakes

Consequences of Inflation

• Price effect: Consumer consumption will go down.
• Income effect: Real income may decrease.
• Saving effect: Consumer saving declines.
• Wealth effect: The value of assets like land, cash, stocks, bonds, and bank deposits