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

The Three Indispensable Roles of the State

But that didn’t mean that the state is unimportant for Smith. He saw that it performed three indispensable roles in the commercial stage of society:

• First, the state should provide defense of the territory in order for perfect liberty to be exercised.
• Second, the state must uphold the rule of law. Without secure property rights over the use and disposal of goods and capital, the market cannot function. To cap the interest rate was very important. He realized that if the reward was too big, investors would forget the risk. But with the rate capped, people will take reasonable risks.
• Third, the state should provide certain “public goods” that it may never be profitable for individuals to produce privately.

1929 Crisis: Stock Market Crash

1. The Booming Twenties

• After WW1, a period of peace emerged.
• Countries experienced economic growth.
• The League of Nations aimed to prevent wars.
• The Dawes and Young Plans aided Germany's economic recovery and reintegration into the League of Nations.
• The US provided financial assistance to Europe for post-war recovery.

The US appeared prosperous with high production, wages, and cheap labor. However, many lived in poverty. European countries imposed tariffs on US imports to protect domestic products. Overconfidence led US citizens to borrow money to buy shares, despite low share prices. European countries grew wary of the US.

Germany borrowed heavily for post-war reconstruction, but it wasn't enough. France occupied... Continue reading "1929 Stock Market Crash: Causes and Effects" »

Tax Deductions for Business Operations

You can write off operational expenses from your taxes for the year in which they occur. This means you can deduct 100 percent of your daily expenses each year.

Operational Expenses vs. Capital Expenditures

• Operational Expenses (Write-offs): Offer the most advantageous tax deductions for the short term, allowing a 100% deduction in the year incurred.
• Capital Expenditures (Depreciation): Must be depreciated. This means you can deduct only a part of the cost of the asset each year over the life of the asset.

Understanding Risk Aversion

Risk Averse: Investing conservatively, avoiding risk unless there is adequate compensation.

Standard Deviation and Investment Volatility

Standard Deviation is applied to the annual... Continue reading "Investment Metrics, Market Structures, and Tax Deductions" »

Types of Primary Research Methods

Questionnaires

A questionnaire is a set of questions used to collect data for market research.

Advantages:

• Detailed qualitative information can be gathered.
• Customer opinions can be obtained.
• They can be carried out online.
• Vouchers can be offered to encourage participation.

Disadvantages:

• Inaccurate answers may result from poorly designed questions.
• Can be time-consuming and expensive.
• Collating and analyzing answers is time-consuming.

Online Surveys

Online surveys require the target sample to answer questions over the internet.

Advantages:

• Quicker response times.
• Cheaper than interviews or postal questionnaires.
• Easy for participants to complete.
• Data can be quickly analyzed using IT tools.

Disadvantages:

• Lack of an interviewer

Return on Assets (ROA) Measurement Models

AECA Model

AECA considers the employed as the base for the measurement of Return on Assets (ROA). When an entity manages its trade payables as part of its trade policy, AECA is useful for estimating the investment requirements for the business. The AECA model reveals the effect of the cash policy on the net cost of finance (high liquidity negatively impacts the cost of finance).

DuPont Model

The DuPont model is very intuitive and useful for entities with a low level of liabilities and low financial expenses. Economic profitability here is meaningless because financial results distort the ROA.

PARES Model

PARES is more precise in measuring ROA because it avoids the disadvantage of DuPont by considering operating... Continue reading "Financial Analysis Metrics: AECA, DuPont, and PARES" »

PROFORMA INVOICE

It is a document without taxes value, the seller provides it to the buyer, contains most of the necessary information about an international operation. If the buyer accepts, it is understood that the buyer accepts and confirms the information indicated on it.

Freight Transportation Fundamentals

Importance of an Effective Transportation System

• Greater competition
• Economic Scale
• Reduced price

Service Choices and Their Characteristics

• Price
• Transit time and variability
• Loss and damage

Transportation Rate Profile

1. Volume related rates
2. Distance-related rates
   • Uniform rates
   • Proportional rates
   • Tapering rates
   • Blanket rates: meet the rates of competitors
3. Demand-related rates: Transportation rate is set by competitor

Transportation Charges

• Line-haul rate
  • By products
  • By shipment size
  • By route
  • Miscellaneous rates
• Special service

Line-Haul Rates

1. By products
   • Classification system was devised (T 6.4)
   • Class rates: once a product has a freight classification, line-haul charges can be determined. Zip codes are used for the location (T 6.5)
   • Break

What is Economic Growth?

Economic growth refers to the increase in the production of goods and services within an economy, typically measured over a long period, such as a year. It is expressed as a percentage increase in the real gross domestic product (GDP), which accounts for inflation.

Calculating GDP

There are two primary methods for measuring an economy's total production:

1. Expenditure Approach: This method sums up all spending on goods and services by households, businesses, governments, and foreign entities. The formula is GDP = C (consumer spending) + I (investment spending) + G (government spending) + (X - M) (net exports).
2. Income Approach: This method calculates the total income earned by all households within a nation.

The Expenditure

Production Theory: Short-Run vs. Long-Run

What is the difference between the short-run and the long-run from the perspective of production theory?

In the short run, only labor varies, and in the long run, both labor and capital vary.

Profit Analysis: Accounting vs. Economic

Accounting profit is ________ compared to economic profit, because accountants ________ opportunity costs in their calculations.

Bigger; do not consider.

Profit Maximization Strategies

A firm will maximize profits when:

The difference between Marginal Revenue and Marginal Cost is the greatest.

If a competitive firm is producing a level of output where marginal revenue exceeds marginal cost, the firm could increase profits if it:

Increased production.

In order to maximize profits, a