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

Economies and Diseconomies of Scale

Economies of scale: Reduction in the average unit costs as the business increases in size. When a business increases the scale of operations, it becomes more efficient.

Diseconomies of scale: Increase in average unit costs as the business increases in size. This occurs when the business experiences inefficiencies as it becomes larger.

Internal Economies of Scale

Efficiencies the business makes itself:

• Technical: Bigger units of production reduce costs since the increase in variable costs are spread over a set of fixed costs.

• Managerial: Managers specialize in one job and not in many.

• Financial: Bigger businesses are less risky than smaller ones since big businesses are considered safe by financial institutions,

Pure Competition

is a theoretical market structure with three necessary conditions: Very large numbers of buyers and sellers, identical products and freedom of entry and exit.

Market Structure

is a classification that describes the nature and degree of competition among firms in the same industry.

Competition:

is a theoretical market structure with three necessary conditions.

Monopolistic Competition

a market structure that has all of the conditions of pure competition except for identical products.

Because a monopolistic competitor faces competition from a large number of firms in its industry, it must somehow convince consumers that its products are better than the products produced by other firms.

Natural Monopoly

A natural monopoly is one in which... Continue reading "Market Structures and Competition" »

Key Functions of Inbound Logistics

Inbound logistics encompasses several critical activities necessary for managing the flow of materials and information into an organization. These functions ensure efficiency, cost control, and timely production.

1. Production Scheduling

   Scheduling of production is done with the assistance of the logistics staff. Production is scheduled in an attempt to balance demand for products with plant capacity and availability of inputs.

2. Procurement (Purchasing)

   Closely related to production scheduling is procurement (or purchasing), since many of the inputs needed for production must be procured from outside sources, known as vendors.

3. Returned Products Management

   In domestic markets, there are many categories of returned products.

Fundamentals of Economic Activity

Economic activity is the combination of tasks undertaken by people in order to obtain the goods required to meet their needs. These goods can be material, such as food, manufactured items, and cars; or immaterial, such as education and health care.

Key Economic Indicators and Units

Financial Markets: Core Functions and Definitions

• Markets that channel funds from those who have an excess of available funds to those with a shortage.
• They promote economic efficiency.
• They channel funds from those without a productive use to those with a productive use but who have a shortage of money.

The Necessity of Financial Markets

Financial markets address critical economic issues, including:

• Matching: Connecting borrowers and lenders efficiently.
• Transaction Costs: Reducing the time, energy, and money required to facilitate transactions.
• Asymmetric Information: Addressing information failure that occurs when one party has significantly more knowledge than the other party.
  • Adverse Selection: A problem of asymmetric information that occurs before

Key Characteristics of a Perfectly Competitive Market

1. Very Large Number of Producers

In a perfectly competitive market, there are a very large number of producers, each of whom produces a very small proportion of the total market output.

2. Producers are Price Takers

As a single producer produces a small proportion of the total output supplied in the market, their production decisions cannot affect the market price of the product. They have to take the prevailing market price as given and fixed. Thus, an individual producer faces a perfectly elastic demand curve.

3. Products are Homogeneous

Products are exactly the same and, therefore, are perfect substitutes for each other. This implies that the cross-elasticity of demand is infinite between... Continue reading "Understanding Perfect Competition in Economics" »

Small Business Advantages:

• Greater focus: focus where they want; in places with greater profitability; in specific markets
• Greater cachet: greater sense of exclusiveness so they can charge more for their output, leading to higher profit margins
• Greater motivation: more prestige can motivate managers/employees
• Competitive advantage: giving a more personalized service and being more flexible
• Less competition: focusing on a niche gives limited competition
• Internal growth: slowly, steady and out of the existent operations of the business. They don't take many risks. Expands by selling more products or by increasing its product range. Usually self-financed
• External growth: quick and riskier methods. Expands by entering into an arrangement with another

Values and Attitudes

Values and attitudes vary between nations, and even vary within nations. So if you are planning to take a product or service overseas make sure that you have a good grasp the locality before you enter the market. This could mean altering promotional material or subtle branding messages. There may also be an issue when managing local employees.

Education

The level and nature of education in each international market will vary. This may impact the type of message or even the medium that you employ.

Social Organizations

This aspect of Terpstra and Sarathy’s Cultural Framework relates to how a national society is organized.

Technology and Material Culture

Technology is a term that includes many other elements. It includes questions... Continue reading "International Marketing: Key Factors to Consider" »

Consumer

person who buys things or uses

Retailer

company or persona who sells directly to the public, especially through shops

Wholesaler

person or company that sells goods in large quantities to shop keepers

Manufacturer

person or organization that makes goods

Distribution

person or company that supplies goods to shops or another business

Transaction

business done between people, often involving a buyer and seller

Goods

things that are produced to be sold

Services

doing something for customers but not producing goods

Value

how much something is worth in money

Supply

quantity of goods available

Turnover

the value of the goods or services sold during a certain period of time

Margin

difference between costs and selling price

Discount

reduction in the usual price of something

Deposit

small... Continue reading "Understanding the Consumer Goods Industry: Key Terms and Concepts" »

Chapter 21: International Financial Management Concepts

Key International Finance Terminology

• Know all terms and their definitions.

Multinational Corporations (MNCs)

What is a multinational corporation? MNCs engage in various forms of international business:

• Exporter
• Licensing Agreement
• Joint Venture
• Fully Owned Foreign Subsidiary

Foreign Exchange Rates and Influencing Factors

Understand foreign exchange rates and the factors that influence them:

• Purchasing Power Parity (PPP) and the Purchasing Power Parity Theory
  • Practice Problems 3, 4
• Inflation
• Interest Rates and the Interest Rate Parity Theory
• Balance of Payments (A trade surplus strengthens the currency; a trade deficit weakens it.)
• Government Policies (e.g., central bank’s actions)
• Other factors: stock