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

What are the Three Fundamental Reasons for the Welfare State's Existence?

The three fundamental reasons for the existence of the welfare state are:

• To assist the economically disadvantaged.
• To address market failures, such as inefficiencies in private insurance and pension systems.
• To support economic growth.

What is the Difference Between Risk and Uncertainty, and How Does the Welfare State Address Both?

Risk refers to situations where the probabilities of possible outcomes are known, while uncertainty is when these probabilities are unknown. The welfare state copes with both scenarios by collectively spreading the risk across a large number of people and adjusting contributions as necessary. This differentiates it from private insurance, which... Continue reading "Welfare State Evolution: Foundations, Challenges, and Policy Solutions" »

Core Business Definitions and Stakeholders

Key Business Products

• Goods: Physical products.
• Services: Non-physical products.
• Consumer Goods: Goods and services sold directly to ordinary people (consumers).
• Producer Goods: Goods and services sold to other businesses.

Types of Enterprise Ownership

Ownership determines who controls and benefits from the enterprise:

• Private Enterprise: Owned by individuals.
• Social Enterprise: A resource focused on objectives other than profit maximization.
• Public Enterprise: Owned and controlled by the government.

Understanding Stakeholders

Stakeholders are individuals or groups with an interest in the business's operations and success. Key stakeholders include:

• Local community
• Owners
• Suppliers
• Customers
• Government
• Employees
• Managers
• Shareholders

Roles

Chapter 3: Business Organizations

There are five main forms of business organizations in the private sector:

1. Sole Traders
2. Partnerships
3. Private Limited Companies (PLCs)
4. Public Limited Companies (Ltd.)
5. Co-operatives

Key Business Terms

Limited Liability: This term refers to the owners of a company (shareholders). They are not held responsible for the debts of the company they own. Their liability is limited to the investment they made in buying the shares.

Partnership Agreement: A written and legal agreement between business partners. While not essential, it is always recommended.

Sole Traders: The most common form of business organization. It is a business owned and operated by one person.

Partnerships: A group or association between 2 and 20 people who... Continue reading "Business Organizations: Structures & Key Concepts" »

Municipal Bond Yield Calculations

Equivalent Taxable Yield (ETY)

A municipal bond carries a coupon rate of 6.00% and is trading at par.

Required Calculation 1: ETY for a 38% Tax Bracket

What would be the equivalent taxable yield of this bond to a taxpayer in a 38% combined tax bracket?

The formula for Equivalent Taxable Yield ($r$) is:

$$r = r_m / (1 - t)$$

• $r$: Equivalent Taxable Yield
• $r_m$: Municipal Bond Yield (6.00% or 0.06)
• $t$: Tax Rate (38% or 0.38)

Calculation:

$$0.06 / (1 - 0.38) = 0.096774 \rightarrow \mathbf{9.68\%}$$

Required Calculation 2: Municipal Yield Preference

An investor is in a 40% combined federal plus state tax bracket. If corporate bonds offer 7.75% yields, what yield must municipals offer for the investor to prefer them to corporate... Continue reading "Financial Calculations: Yields, Index Returns, and Security Pricing" »

Hedging with S&P 500 Index Futures

SIF hedging: NF = V_F(antiguo) = F_o x Z. NF (Number of contracts) = V_p (portfolio value) / (V_F x B_p) (Beta). With this hedge, risk is removed. If the index goes up, the profit in the portfolio will be offset by losses in SIFs contracts and vice versa.

Example: S&P 500 falls 5%:

• In the portfolio: R_p = B_p x (-5%) = -10% of a portfolio of $10M, resulting in $9M (Final Value).
• In the SIFS contracts: S_i = 980 (S&P 500 value given) x 0.95 (100% - 5%) = 931. F_i = 931 x (1 + 0.04 x 5/12 (next month timeframe)) = 946.52. V_F = NF x (F_i - F_o) x Z (250).
• Gain on futures: V_F(New) / Equity portfolio value.
• Outcome stock portfolio: 2 x (-5%) = -10%.
• Final Value portfolio: $10M - $1M + V_F(New).

Margin Payments

Margin payments... Continue reading "Hedging and Speculation with Futures and Options" »

Defining "Person"

A "person" can refer to various legal entities:

1. Individual: A natural human being.
2. Hindu Undivided Family (HUF): A family unit with common ancestors, treated as a single entity for tax purposes (India).
3. Company: A corporate entity registered under the Companies Act or similar law.
4. Firm: Partnership firms and limited liability partnerships (LLPs).
5. Association of Persons (AOP) or Body of Individuals (BOI): A group with a common purpose, with or without a formal partnership.
6. Local Authority: Municipal corporations, panchayats, and other local governance bodies.
7. Artificial Juridical Person: Entities like trusts, universities, or temples, recognized by law.

Defining "Assessee"

An "assessee" is a person liable to pay taxes:

1. Ordinary Assessee:

International Financial Institutions

International Monetary Fund (IMF)

• Lender of Last Resort: Provides financial assistance to countries facing balance of payments problems.
• Public Goods: Contributes to global financial stability.
• Conditional Loans: Loans are often tied to economic policy reforms.
• Quotas: Determine a member country's financial contribution and voting power.

World Bank

• Physical Public Goods: Focuses on financing development projects and infrastructure in developing countries.

International Trade Theories

Interindustry Trade

• Trade of different goods between different countries.
• Ricardian Theory: Explains trade based on comparative advantage, where countries specialize in goods with lower opportunity costs.

Intraindustry Trade

• Trade of similar

Operations: Key Questions for Value Creation

• What processes create value? Example: Amazon with its automated logistics.
• What activities support these processes? Example: Google heavily invests in R&D and qualified HR.
• What external factors influence operations? These include globalization, offshoring, and digitalization. Example: Nike manufactures in Asia to cut costs.
• What are the key considerations for internationalization in operations? Culture, costs, laws, and partners are crucial. Example: IKEA adapts its products to the Chinese market.
• What common mistakes should be avoided in operations? A local mindset, lack of market study, and unclear contracts can lead to failure. Example: Walmart failed in Germany due to cultural mismatch.

Global

Political Economy: Collective Decision-Making

Lindahl Pricing

Individual Marginal Benefit (MB) curves are summed vertically to determine the Social Marginal Benefit (SMB). Efficiency is achieved at the quantity (Q) where SMB = Social Marginal Cost (SMC). While theoretically efficient, it often fails due to preference issues:

• Revelation Problem: Individuals may misrepresent their true preferences.
• Knowledge Problem: Difficulty in knowing individual preferences.
• Aggregation Problem: Challenges in combining diverse preferences.

Voting Mechanisms

Voting works effectively with single-peaked preferences (where individuals have one most preferred choice).

Problems with Voting

• Non-Single-Peaked Preferences: Can lead to cyclical outcomes, known as the voting

Glovo's Primary Activities: Core Value Creation

• Inbound Logistics

  Glovo partners with local restaurants, stores, and service providers to secure a steady supply of goods available for delivery. This involves managing relationships and ensuring that partners have the necessary infrastructure to fulfill orders efficiently.

• Operations Management

  Glovo’s operations include the processing and coordination of orders through its app, from customer selection to payment and order dispatch. The company uses algorithms to optimize delivery routing, reduce wait times, and ensure efficient order batching, contributing directly to its value proposition of fast delivery.

• Outbound Logistics and Delivery

  As a delivery service, outbound logistics are critical. Glovo’s