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

Niche market - It is a small market that aims to meet specific user needs.

Merger

A combination of two or more companies in which the resulting firm maintains the identity of the acquiring company.

Consolidation

The combination of two or more firms, generally of equal size and market power, to form an entirely new entity.

Portfolio Effect

Merger allows acquiring firms to enjoy potentially desirable portfolio effect:

• Achieves risk reduction while maintaining firm’s rate of return

Tax Loss Carry Forward

A loss that can be carried forward for a number of years to offset future taxable income and perhaps utilized by another firm in a merger.

Horizontal Integration

The acquisition of a competitor.

Vertical Integration

The acquisition of customers or suppliers by the company.

Synergy

The recognition that the whole may be equal to more... Continue reading "Merger and Acquisition Terms for Multinational Corporations" »

Economic Value Added (EVA)

EVA: The industry has an operating income for the year of $3,500,000 and a 36% tax rate. Its total invested capital is $20,000,000, and its after-tax percentage cost of capital is 8%. What is the firm's EVA?

EVA = $3,500,000 (0.64) – ($20,000,000 x 0.08)

$2,240,000 – $1,600,000 = $640,000

Personal Taxes

A married couple files a joint income tax return, where the tax rates are based on the tax tables presented in the chapter. Assume that their taxable income was $375,000.

What is their federal tax liability? $51,577.50 + ($375,000 – $230,450) * 0.33

= $51,577.50 + $47,701.50 = $99,279.00

What's their marginal tax rate? 33%

What is their average tax rate? $99,279.00 / $375,000 = 26.47%

Statement of Stockholders' Equity

The... Continue reading "Financial Statement Analysis: Solved Problems" »

1 Steps to Elaborate a Job Description

Job title, duties, skills and competencies, relationships, salary

2 Skills for New Receptionist

For our receptionist positions we need certain skills, communication skill, multitasking skills, confidential, computer literacy, friendly, intelligent, tolerant and patient, professional, innovative, organized

3 Pre-Opening Plan

• Establish a positive image
• Let customers know you are opening for business
• Bring in customers or have them contact you
• Interest customers in your new company and your product or service

Ongoing Plan

• Explaining major features and benefits of your products
• Communicating information about seller
• Clearing up customers' questions and concerns
• Introducing new goods or services

4 Labor Union

Is an organization... Continue reading "Effective Strategies for Job Description and Product Promotion" »

What is the European Union and its start date?

The first steps were to foster economic operations. Countries that trade with one another become economically interdependent. It came into force on July 1, 2000.

Benefits of the EU-Mexico Trade Agreement

The EU-based trade policy agenda sends a signal to the world that the EU and Mexico are open for business and reject protectionism.

Implications of the UK's Exit from the EU

A key transition period began to determine the future relationship between the UK and the EU.

What is the Pacific Alliance and its start date?

It is a mechanism of economic and commercial integration, based on four pillars. It entered into force on July 20, 2016.

Objectives of the Pacific Alliance

To promote greater growth, development,... Continue reading "Key International Trade Agreements for Mexico" »

Economies and Diseconomies of Scale

Economies of scale: Reduction in the average unit costs as the business increases in size. When a business increases the scale of operations, it becomes more efficient.

Diseconomies of scale: Increase in average unit costs as the business increases in size. This occurs when the business experiences inefficiencies as it becomes larger.

Internal Economies of Scale

Efficiencies the business makes itself:

• Technical: Bigger units of production reduce costs since the increase in variable costs are spread over a set of fixed costs.

• Managerial: Managers specialize in one job and not in many.

• Financial: Bigger businesses are less risky than smaller ones since big businesses are considered safe by financial institutions,

Pure Competition

is a theoretical market structure with three necessary conditions: Very large numbers of buyers and sellers, identical products and freedom of entry and exit.

Market Structure

is a classification that describes the nature and degree of competition among firms in the same industry.

Competition:

is a theoretical market structure with three necessary conditions.

Monopolistic Competition

a market structure that has all of the conditions of pure competition except for identical products.

Because a monopolistic competitor faces competition from a large number of firms in its industry, it must somehow convince consumers that its products are better than the products produced by other firms.

Natural Monopoly

A natural monopoly is one in which... Continue reading "Market Structures and Competition" »

Monetary policy:“Monetary policy is the process by which the monetary authority of an country controls the supply of money, often targeting an inflation rate or interest rate to ensure price stability and general trust in the currency”.Expansive, low interest rates, cheap money. If the money flows towards the economic agents with a low cost, governments can boost C and I. However, this does not always work, in the current crisis. Companies would not borrow because there was a shrinking demand - they didn’t want more facilities! - and Consumers would not buy because of the high unemployment and uncertainty.

üFiscal Policy:

Increase on G, multiplying effect, somehow forces consumption. Governments can fund big projects to boost the economy.

Key Characteristics of a Perfectly Competitive Market

1. Very Large Number of Producers

In a perfectly competitive market, there are a very large number of producers, each of whom produces a very small proportion of the total market output.

2. Producers are Price Takers

As a single producer produces a small proportion of the total output supplied in the market, their production decisions cannot affect the market price of the product. They have to take the prevailing market price as given and fixed. Thus, an individual producer faces a perfectly elastic demand curve.

3. Products are Homogeneous

Products are exactly the same and, therefore, are perfect substitutes for each other. This implies that the cross-elasticity of demand is infinite between... Continue reading "Understanding Perfect Competition in Economics" »

Small Business Advantages:

• Greater focus: focus where they want; in places with greater profitability; in specific markets
• Greater cachet: greater sense of exclusiveness so they can charge more for their output, leading to higher profit margins
• Greater motivation: more prestige can motivate managers/employees
• Competitive advantage: giving a more personalized service and being more flexible
• Less competition: focusing on a niche gives limited competition
• Internal growth: slowly, steady and out of the existent operations of the business. They don't take many risks. Expands by selling more products or by increasing its product range. Usually self-financed
• External growth: quick and riskier methods. Expands by entering into an arrangement with another