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

Market Analysis and Demand Metrics

• Market Size by Value: Total volume of sales × Average market price
• Market Size by Value: (Business sales / % Market share) × 100
• Market Share: (Value of firm A's sales / Value of total market sales) × 100
• Market Growth: (Change in size of market by value / Original size of market by value) × 100
• Price Elasticity of Demand (PED): Percentage change in quantity demanded / Percentage change in price
• Income Elasticity of Demand: Percentage change in quantity demanded of Good A / Percentage change in consumers' real income

Revenue, Costs, and Profitability

• Total Revenue: Average selling price × Quantity sold
• Total Costs: Total fixed costs + Total variable costs
• Average (Unit) Costs: Total costs / Number of items produced
• Profit:

What is Standard of Living?

A person's standard of living is the level of material comfort that they are able to enjoy in terms of the goods and services which they can buy or use.

Understanding Gross Domestic Product (GDP)

The GDP measures the growth of economies over time.

• It can be used to make comparisons between levels of production, income, and spending between countries.

Limitations of GDP as a Measure

GDP is NOT a good measure for several reasons:

• It doesn't take into account the degree of inequality in a society. Although GDP per head in a country might rise over time, prosperity does not necessarily make much difference to the living standards of poorer people.
• GDP simply measures the value of goods produced; it doesn't take into account

Understanding Corporate Structures

Diversification: This occurs when a company offers new products and attempts to enter new markets.

Holding: A parent company buys the shares of its subsidiaries, making the parent the owner. The parent company makes the most important decisions, holding the majority of shares and votes.

Trust: The subsidiaries are the owners of the shares, so the profits are shared among each company. The management of the shares is handled by a board of directors. The companies produce the same or similar products, with the objective of growing as a company and becoming more competitive.

Cartel: Companies that produce the same product sign an agreement to reduce competition. They agree to sell the product at the same price and... Continue reading "Understanding Corporate Structures: Diversification to Transnationals" »

Market Structures

Perfect Competition: many buyers & sellers of a standard product & easy entrance & exit (ex: oranges)

Monopolistic Competition: many buyers & sellers of slightly differentiated products & easy entrance & exit (fast food)

Oligopoly: few businesses and entry to industry is restricted (cars & cellphones)

Monopoly: one business supplies a product w/ no close substitutes (debeers diamonds)

Key Concepts

Entry Barriers: increasing returns to scale, market experience, restricted ownership of resources, legal obstacles, market abuses, advertising

Market Power: a business's ability to affect the price of the product it sells

Revenue

Average Revenue: the extra total revenue earned from an additional unit of output... Continue reading "Understanding Market Structures and Competition" »

Key Characteristics of Common Equity

Which of the following is not a characteristic of common equity?

The company is obligated to make periodic dividend payments.

Statutory Voting Explained

The type of equity voting right that grants one vote for each share of equity owned is referred to as statutory voting.

Understanding Preference Shares

All of the following are characteristics of preference shares except:

• They are either callable or putable.
• They receive an additional dividend exceeding a predetermined level.

Private Equity Securities: Market-Determined Quoted Prices

Which of the following statements about private equity securities is incorrect?

They have market-determined quoted prices.

Venture Capital Investments: Mezzanine Financing

Venture capital... Continue reading "Understanding Equity Securities: Key Characteristics and Risks" »

Strategy: Adding Value to Your Business

Three Horizons of Growth

Horizon 1: Extend and defend core business.
Horizon 2: Build emerging businesses.
Horizon 3: Create viable options.

PESTEL Analysis

Political: Role of the state, government policies.
Economic: Interest rates, exchange rates, unemployment rates.
Social: Changing cultures and demographics.
Technological: New discoveries and technology developments.
Ecological: Environmental issues (pollution, waste, climate change).
Legal: Legislative and regulatory constraints or changes.

Porter's Five Forces

Threat of Entry: High barriers to entry equate to a low threat of entry.
Threat of Substitutes: Products or services offering similar benefits but with different maturity.
Bargaining Power of Buyers: Powerful... Continue reading "Strategic Management: A Comprehensive Guide" »

Game Theory Fundamentals

Game Theory is a simplified model approach used to formalize conflict in terms of a game. It formalizes conflict situations between two parties, taking into account their actions and reactions. It offers a promising approach to analyze competitive situations that can be formally translated into the categories of this theory.

Core Components of a Game

The games consist of:

• A set of players.
• A set of strategies.
• The payoffs to each player for every possible combination of their strategy choices.

Both players typically make their decisions simultaneously, without knowing the other player's decision.

Key Equilibrium Concepts

Dominant Strategy and Pareto Efficiency

A dominant strategy is the best possible payoff for a player, no matter... Continue reading "Game Theory Fundamentals: Strategies, Equilibrium, and Market Models" »

The seven principles stated on the article are:

1.)Price stability provides substantial benefits

Low and stable inflation prevents overinvestment in the financial sector which otherwise would be a way to escape the costs of inflation. It lowers uncertainty enabling businesses and individuals to make appropriate decisions, increasing economic efficiency and finally lowers distortions from interactions between the tax systems and inflation (Better employment of resources and increase economic growth).

2) Fiscal policy should be aligned with monetary policy;

Large government deficits place pressure on monetary authorities to monetize debt, producing rapid money growth and inflation.

3) Time inconsistency is a serious problem to be avoided;

Motivation... Continue reading "Principles of Monetary Policy and the Fed's Performance" »

Customer Service

Importance

One of the objectives of a company is customer loyalty and customer satisfaction.

It is more expensive to get new customers than to keep those you have.

Principles of Customer Service

• Customers are the most important individuals.
• The company depends on customers (not the other way around).
• Companies exist because customers exist; customers are our "work".
• Customers seek a good or service that should be provided.
• Customers are not a number; they must be treated with respect.
• The customer is the backbone of the company.

Customer Service Department

The entire staff should be involved in providing adequate customer care.

They don't only handle complaints, but also gather information through claims or suggestions.

It should provide: