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

Key Concepts in International Trade Economics

Market Structures Comparison

Oligopoly vs. Monopolistic Competition

• Oligopoly: Refers to a market dominated by a small number of firms, where each firm formulates its strategy based on anticipated actions of the others.
• Monopolistic Competition: Refers to firms that possess brands granting them a degree of monopoly power, but they compete against other firms offering differentiated products that are close substitutes.

Production Location Decisions

Outsourcing and Offshoring

• Outsourcing: Production contracted to another firm, which may be located either inside the home country or abroad.
• Offshoring: Refers to relocating some or all production activities to a foreign country.

Trade Patterns

Interindustry vs.

Core Accounting Definitions

• Accounts Payable: What the company owes.
• Accounts Receivable: Money owed to the company (e.g., from customers); included as assets.
• Accumulated Depreciation: How much an asset loses value over time (pages 46-49).
• Assets: Things you own (found in the balance sheet).
• Equity: All the money the owner or owners put into the company.
• Expenses: Everything the company has to pay and spend to produce and create profit.

Financial Statements

• Balance Sheet: A statement that shows a company's assets, liabilities, and equity; prepared yearly.
• Balance Sheet Equation: Assets = Liabilities + Owner's Equity.
• Income Statement: Statement of operations, declared yearly (cumulative results, also known as the bottom line).

Operational and Asset Classifications

• Common

Peppers and Rogers described different steps that are involved in evaluation.

PepsiCo experienced great success in Latin America with its leverage; experience gained in one country can be used in another country.

Product placement has reached the world of live: viewers are being marketed to subliminally without their consent.

Promotions designed to increase product availability in distribution include trade sales promotions.

Red Bull has been involved in Music Academy relationship marketing, which is crucial for brand engagement.

Social couponing is one of the hottest online sales promotion trends, especially with platforms like Groupons.

Some advertisers acknowledge that, in Brazil, the market dynamics are unique.

Spoexa, a food-marketing company,... Continue reading "Understanding Marketing Strategies and Trends in 2023" »

Product Mix Pricing Strategies

2. Optional Product Pricing

Companies offer to sell optional accessory products along with the main product. Example: A car buyer choosing to add GPS or Bluetooth.

3. Captive Product Pricing

Companies that make products that must be used along with a main product use captive product pricing. Examples: Razor blades, cartridges, consoles, printers, and Nespresso pods.

4. Product Bundle Pricing

Sellers often combine several products and offer the bundle at a reduced price. Examples: Phone service packages, restaurant menus, etc.

Price Adjustment Strategies

1. Discount and Allowance Pricing

Most companies adjust their basic price to reward customers for certain responses, such as early payment of bills, volume purchases, and... Continue reading "Effective Product Pricing and Marketing Channel Strategies" »

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