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

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

• Attract new customers by promising superior value
• Keep and grow current customers by delivering satisfaction

Four Elements of a Successful Strategy

• Simple, consistent, and long-term goals
• Deep understanding of the competitive environment
• Objective appraisal of internal resources
• Effective implementation of these three elements

PESTEL Analysis

A framework for analyzing the external macro-environmental factors that impact an organization:

• Political: Tax policy, labor law
• Economic: Interest rates, inflation
• Sociological: Population growth, demographics
• Technological: Automation, innovation
• Environmental: Climate change, sustainability
• Legal: Discrimination and employment law

Porter's Five Forces Model

A framework for analyzing industry attractiveness and competitive intensity:

• Threat of new entrants
• Threat of substitute products or services
• Bargaining power of buyers
• Bargaining

Hotel Booking and Room Management

• 48-hour release: A system by which rooms have to be claimed or sold 48 hours (two days) before.
• Allocation: The amount given for a particular purpose (hence Allocation Holder).
• Availability chart: A chart which indicates the number of rooms that can be sold for a particular period.
• Free sale agents: People or organizations which sell rooms on behalf of a hotel, but without the need to check if rooms are available.
• Room rate: A fixed amount at which a room in a hotel is charged.

Financial and Payment Terminology

• Bill: A piece of paper which shows how much money you owe for goods and services; in the US, a money note.
• Calculate: To find an answer by using numbers.
• Cash: Money in the form of coins and notes.
• Cheque: A special

Delegation of authority is the result of:

• the firm’s growth
• more complex decisions

Delegation and empowerment are essential skills for effective managers. Although the terms are sometimes used interchangeably, there are several areas of difference between them:

• Delegation is a straightforward means of assigning tasks to your employees.
• Empowerment seeks to give an employee more authority with the aim of developing employee commitment, enthusiasm, and expertise, while encouraging innovation that will benefit the organization over time. Empowerment necessarily requires some level of delegation, but not all instances of delegation will produce an empowered employee.

Responsibility: The obligation, placed on employees through delegation, to perform... Continue reading "Delegation of Authority and Empowerment in Management" »

The Model of Valuation of Financial Assets by the Arbitrage Pricing Theory

Stephen Ross developed this theory in 1976. It is an equilibrium model for asset valuation. Its central idea is the expected return on an asset must be a linear function of its systematic risk. The APT considers that the only risk that the market is willing to remunerate is the systematic one, since the rest of the risk can be eliminated via diversification. According to this model, the systematic risk is the fundamental explanatory factor of the performance of the profitability of financial assets, although that is not measured only by the beta coefficient of the profitability of an individual asset with respect to the profitability of the market portfolio, but by a... Continue reading "Understanding the Arbitrage Pricing Theory for Financial Asset Valuation" »

Credit Market Equilibrium

Given parameters {β, N, y₁, y₂}, a competitive equilibrium consists of an allocation {c*₁, c*₂, b*₁} and an interest rate R* such that:

• {c*₁, c*₂, b*₁} maximize the household’s utility given R*.
• Markets clear:
  • Bonds: ∑_i=1^N b*_i,1 | = Nb*₁ = 0
  • Consumption goods: Nc*₁ = Ny₁, Nc*₂ = Ny₂

Overlapping Generations (OLG) Model

Given parameters {N, β, δ, α, s₁, {A_t}_t=1^∞}, an equilibrium consists of sequences of prices {w_t, r_t}_t=1^∞, quantities {c_y,t, c_o,t+1, s_t+1}_t=1^∞ for the household, and allocations {K_t, L_t}_t=1^∞ for the firm such that:

• Given {w_t, r_t}_t=1^∞, households make optimal decisions for each generation t ≥ 1, i.e., {c_y,t, c_o,t+1, s_t+1} satisfy equations (10), (11), and (12).
• The initial old generation maximizes

Understanding Credit, Debt, and Insurance

Credit Rule of Thumb: Product should outlive its payment; don't use credit if the purchase is beyond earnings capability.

Factors That Influence Credit Score:

• Billing history (35%)
• Length of bill payment history (15%)
• Amount owed (30%)
• New credit lines (10%)
• Types of credit (10%)

FICO Score:

300-850; above 800 is great; below 620 is not good (high risk); 40% of Americans have a score under 600.

Credit Bureaus:

TransUnion, Equifax, Experian (each has its own credit score).

Types of Entries in a Credit Report:

• Identifying Info
• Public Records (bankruptcies, civil judgments, and tax liens)
• Inquiries
  • Soft Inquiries (i.e., a credit

Understanding the Marketing Environment

Actors and Forces Shaping Marketing Success

A company's marketing environment encompasses the actors and forces beyond marketing that influence marketing management's capacity to cultivate and sustain successful relationships with target consumers. Companies must vigilantly monitor and adapt to the ever-changing environment. The marketing environment comprises two key components:

• Microenvironment: This includes actors close to the company that impact its ability to engage and serve customers effectively.
• Macroenvironment: This consists of broader societal forces that shape the microenvironment, including demographic, economic, natural, technological, political, and cultural factors.

The marketing environment... Continue reading "Understanding Marketing Environment and Consumer Behavior" »