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

Introduction

More Supermarket is a well-established chain with a strong reputation for quality and value. However, recent market research has shown that the brand has a particularly low rating among consumers aged between 18 and 25. This age group associates the brand with older generations and finds it to be outdated and unappealing.

In order to change young consumers' perception of More and increase sales among this age group, we propose the following concrete measures:

1. Partner with local universities and colleges

Young adults are busy and often on a tight budget. They appreciate convenience and value for money. One way to make More more appealing to this age group is to partner with local universities and colleges. This could involve offering... Continue reading "Increasing More Supermarket's Appeal to Young Adults" »

Addressing Externalities to Achieve Social Optimum

Negative Production Externality: Adjusting Equilibrium

The social cost of production exceeds the private cost reflected in the supply curve. The socially optimal quantity is where the value to consumers (demand curve) equals the social cost curve. A tax imposed on producers, reflecting the social cost, shifts the supply curve to coincide with the social-cost curve, thus achieving the social optimum.

Positive Production Externality: Adjusting Equilibrium

The social cost of production is less than the private cost reflected in the supply curve. The ideal outcome is to produce more than the private market dictates. Governments can internalize this by issuing subsidies, which shift the supply curve... Continue reading "Correcting Market Failures: Externalities and Social Optimum" »

One of the dynamic gains from trade is the diffusion of technological advance. Can you explain this gain and the impact on domestic companies? 10 points.

The dynamic gains refer to the relationship between trade and economic growth. The economy experiences increases in its stock of productive factors because a technological innovation helps a country's existing stock of factors to become more efficient. This means in our model the PPF has a growth.

The United States has used quotas to protect its domestic sugar industry. What has been the likely impact of these quotas on the world price of sugar (relative to the price that would exist under free trade)? 10 points.

Quotas restrict the amount of foreign competition in the marketplace, so that means... Continue reading "Understanding Trade Dynamics and Policies Impact" »

Concentration Strategies

Horizontal Growth

Expansion of operations into other geographic locations and/or increasing the range of products and services offered to current markets.

Horizontal Integration

The degree to which a firm operates in multiple geographic locations at the same point on an industry’s value chain.

Diversification Strategies

Concentric (Related) Diversification

Growth into a related industry when a firm has a strong competitive position but attractiveness is low.

Synergy

The concept that two businesses will generate more profits together than they could separately.

Retrenchment Strategies

Retrenchment Strategies Defined

Used when the firm has a weak competitive position in some or all of its product lines due to poor performance.

Turnaround

Technique No. 2: Business Model Ideation

Mapping an existing business model is one thing; designing a new and innovative business model is another. Ideation is the process for generating a large number of business model ideas and successfully isolating the best ones. Today, different business models compete in the same markets, and boundaries between industries are blurring—or disappearing altogether.

One challenge we face when trying to create new business model options is ignoring the status quo and suspending concerns over operational issues so that we can generate truly new ideas. Business model innovation is not about looking back, because the past indicates little about what is possible in terms of future business models. Business model... Continue reading "Business Model Ideation: Generating Innovative Concepts" »

Major Issues in Joint Ventures

1. Joint venture name and its legal nature (limited liability company or not)
2. Scope and scale of production or operations
3. Investment amount, unit of currency, and equity (ownership) distribution
4. Forms of contribution (cash, technology, land, or equipment)
5. Responsibilities of each party
6. Technology or knowledge transfer
7. Marketing issues, such as focusing on export market or local market
8. Composition of the board of directors (in EJVs)
9. Nomination and responsibilities of high-level managers
10. Joint venture project preparation and construction issues
11. Labor management (various human resource issues)
12. Accounting, finance, and tax issues (the currency unit of accounting)
13. Alliance duration
14. Disposal of assets after expiration
15. Amendments, alterations,

Monopoly

A monopoly exists when a firm is the sole seller of a product without close substitutes.

How Monopolies Arise

1. Natural Monopoly: Economies of scale allow only one firm to produce the entire output at the lowest average cost.
2. Control of Resources: Ownership or control of essential raw materials or unique production techniques.
3. Legal Protection: Patents, copyrights, and trademarks grant exclusive production rights.

Public Policies Against Monopoly

1. Competitive Legalisation: Banning anti-competitive pricing strategies like price fixing, predatory pricing, or price gouging.
2. Public Ownership: Government operation of a private monopoly.

Price Discrimination

Price discrimination occurs when a firm charges different prices for the same product to different... Continue reading "Monopoly, Monopolistic Competition, and Price Discrimination in Economics" »

MARKET VALUE PERFORMANCE MEASURES

MVA

Market Capitalization = (#shares * price per share) - Equity

MTBR

Measures how much value has been added for each dollar that shareholders have invested = MVOEQUITY / BVOEQUITY

MEASURING PROFITABILITY

EVA

Economic Value Add or Residual Income = The profit after deducting all costs including the cost of capital = After-tax operating income (after tax interest + NI) - (cost of capital * total capitalization at the start of the year) = ((1- tax rate)(interest expense) + NI) - (cost of capital)(long term debt + total equity beginning of year)

ROE

NI / Equity start

ROA

(1-tax rate) * interest expense + NI / Total Assets start

ROC

(1- tax rate) * interest expense + NI / LTD start + Equity start

MEASURING EFFICIENCY

How effectively... Continue reading "Financial Performance Measures and Analysis" »

The organizational structure is the framework of hierarchy, relationships, responsibilities, and information flow within a firm. It is shaped by several factors, including company size, international orientation, the number and consistency of product lines, and expansion plans.

Defining Organizational Structure

Dimensions of Activity and Responsibility

• Horizontal: Focuses on the division of *activities*.
• Vertical: Pertains to *authority* and *hierarchical relations*.

Key Organizational Structures for International Operations

Functional Structure

A functional structure groups each portion of the organization according to its purpose, such as a marketing department, a sales department, or a production department.

Export Department

Companies typically... Continue reading "Global Business Organizational Structures" »

Understanding Poverty

Defining Poverty

Relative poverty refers to economic inequality within a society. Individuals or groups experiencing relative poverty have less access to goods and services compared to others.

Absolute poverty signifies the lack of resources to meet basic human needs, such as water, food, sanitation, shelter, clothing, and education.

People Affected by Poverty

Individuals facing poverty often experience disadvantages, including limited access to quality education and increased health risks.

Causes of Poverty

1. Unemployment or Underemployment: Lack of sufficient work opportunities to earn a living wage.
2. Old Age: Insufficient income after retirement.
3. Ill Health: Mental and physical health issues can hinder employment and increase expenses.