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

Adam Smith and the Foundations of Modern Economics

Adam Smith was a pioneer of political economy. His seminal works include The Theory of Moral Sentiments (1759) and An Inquiry into the Nature and Causes of the Wealth of Nations (1776), which marks the beginning of economics as a science. His theories are based on the coincidence between private and public interest in acting freely.

The Invisible Hand and State Intervention

Smith famously proposed that an "invisible hand" leads man to a purpose alien to his intentions, benefiting society through individual self-interest. Consequently, he condemned the intervention of the State in the economic life of individuals, although he admitted certain exceptions to absolute freedom, such as the gradual... Continue reading "Adam Smith: The Foundations of Classical Economics" »

Big Five Personality Dimensions (Vecchio, 2003)

1. Need for Achievement (importance of parental influences)
2. Need for Autonomy
3. Locus of Control: Internal (control of own destiny)/ External (others control my destiny)
4. Risk Taking Propensity
5. Entrepreneurial Self Efficacy (ESE)

PHASE 1: Start Up

Pitfalls

1. The owner works for free.
2. Less attention to financial aspects.
3. Everybody feels responsible, no one is responsible.
4. Too much excitement. Down to earth!

Skills

1. Accounting skills
2. Leadership skills
3. Capability to slow down

PHASE 2: Steadying the Ship

Pitfalls

1. Less attention for management of the company.
2. Conflicts among managers and departments.
3. Working in the company instead of working at the company.

Skills

1. Managerial skills
2. Able to analyze changes in the business environment

PHASE

Limitations of GDP Calculation

Gross Domestic Product (GDP) calculations face several inherent limitations:

• Excludes non-market activities (e.g., domestic activities, housewives' labor, subsistence production, black market).
• Does not include depreciation of capital.
• Some market activities are included as an estimation instead of their real contribution to production (e.g., health services, police).
• Includes all production independent of its use, utility, or improvement of social welfare (i.e., defense spending).
• Does not account for negative effects like the loss of national patrimony or wealth (e.g., loss of fertile land or forests).

Free Float Exchange Rate System Analysis

A free float exchange rate system offers distinct advantages and disadvantages:... Continue reading "Economic Models, Exchange Rates, and Population Dynamics" »

Payback Period Analysis

Disadvantages of Payback Period

• Cash flows may be difficult to estimate, particularly in years beyond the next.
• The total amount of investment is ignored.
• Thus, an investment with an early payback may be preferred to one which, although it takes longer to payback, might generate a greater return.
• The method is absolute; there is no indication of what is an acceptable payback period, except, intuitively, it should be short.
• Not only is the yardstick flawed, its length can vary according to economic circumstances and the trading position of the firm.
• Cash flows after the payback point are ignored.
• The time value of money is not considered.

Advantages of Payback Period

• Easy to calculate.
• Shows the extent of “exposure” involved

Evaluate and Select Suppliers

The most important duty of purchasing is the right to evaluate and select suppliers. This is what purchasing personnel are trained to do.

The selection decision in sourcing teams requires that members reach a consensus in selecting suppliers.

Review Specifications

The authority to review material specifications is also within purchasing’s span of control.

Purchasing should also lead or coordinate negotiations with suppliers. This means that purchasing retains the right to control the overall process, act as an agent to commit an organization to a legal agreement, and negotiate a purchase price.

E-Procurement and the Procure-to-Pay Process

We examine in detail the purchasing process, which includes all the steps that... Continue reading "Procurement: Supplier Selection and Purchasing Process" »

Key Negotiation Terminology

• Opening Point: This is the figure you give for a particular variable when you first state your position.
• Target Point: This is the figure for a particular variable that you would find satisfactory.
• Reservation Point: This is your limit for a particular variable. You cannot go beyond this point.
• BATNA: This is your Best Alternative To a Negotiated Agreement. In other words, it is what you will still have if the negotiation fails.
• Deadlock: A situation where there is no solution, because neither side can move.

Understanding Financial Terms & Payments

Types of Payments

• Tip: To thank someone for their services (for example, a waiter).
• Commission: To an agent or salesperson.
• Charge: For a service (electricity, postage).
• Fees:

Essential Economic Terms and Definitions

• GDP: GDP is the monetary value of all the finished goods and services produced within a country's borders in a specific time period.
• Industrial Revolution: The transition to new manufacturing processes in Europe and the US, in the period from about 1760 to sometime between 1820 and 1840.
• Labor Force: The number of people who are employed plus the unemployed who are looking for work.
• Labor Force Participation Rate: The labor force participation rate refers to the number of people available for work as a percentage of the total population.
• Cyclical Unemployment: Cyclical unemployment is a factor of overall unemployment that relates to the regular ups and downs, or cyclical trends in growth and production, that