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

Leases

• Operating lease: a shorter-term lease under which the lessor is responsible for insurance, taxes, and upkeep, cancelable by lessee on short notice.
• Financial lease: a longer-term, fully amortized lease which the lessee is responsible for maintenance, taxes, and insurance. Not cancelable without penalty.
• Leveraged lease: a tax-oriented lease in which the lessor borrows a substantial portion of the purchase price of the leased asset on a nonrecourse basis.
• Sale and leaseback: occurs when a company sells an asset it owns to another party and simultaneously leases it back.
• Capital lease: transfer ownership to lessee by the end of the term, lesses purchase the asset at a price below fair market value when lease expires, >75% economic life,

The Foundation of Segregation in Levittown

Originally, the Levitts’ racist policy was enshrined in the lease itself, which stipulated that “the tenant agrees not to permit the premises to be used or occupied by any person other than members of the Caucasian race.”

Although that provision was later struck down in court as unconstitutional, Bill Levitt continued to enforce racial homogeneity in practice by rejecting prospective Black buyers.

Activism and the NAACP Lawsuit

Activist groups across the U.S., and even individuals within Levittown who united under the Committee to End Discrimination in Levittown, protested the Levitts’ racist policies.

In 1955, the National Association for the Advancement of Colored People (NAACP) sued federal mortgage... Continue reading "Suburban Segregation: The Battle for Racial Equality in Levittown" »

The Liquidity Preference Theory of Interest

The Liquidity Preference Theory, presented by J.M. Keynes in 1936, is a highly regarded theory. According to Keynes, the rate of interest is a purely monetary phenomenon. It represents the reward for relinquishing liquidity for a specific period.

Thus, similar to the price of a commodity, the rate of interest is determined by the demand for and the supply of money. Therefore, it is necessary to introduce the concepts of demand for money and supply of money.

The supply of money refers to the stock of money in circulation and is a fixed quantity at a particular point in time. It is the sum of currency (notes and coins) and commercial bank deposits. It remains fixed in the short run because it is determined... Continue reading "Liquidity Preference Theory: Keynes' Interest Rate Model" »

CH:3 Term: Balance Sheet: The balance sheet is a snapshot of the firm’s assets and liabilities at a given point in time. Assets are usually listed in descending order of liquidity, or the ability to convert to cash. While the assets depict what is owned, liabilities and equity represent what is owed or who provided the funding for the assets. Balance Sheet Identity: {Assets = Liabilities + Stockholders’ Equity}

Net Working Capital: The difference between current assets and current liabilities. It is positive when the cash that will be received over the next 12 months exceeds the cash that will be paid out. Usually, it is positive in a healthy firm.

Market Value vs. Book Value: The balance sheet provides the book value of the assets, liabilities,... Continue reading "Understanding Balance Sheets and Income Statements in Finance" »

Effective Segmentation

MEASURABLE: The size, purchasing power, and profiles of the segments can be measured.

ACCESSIBLE: The market segments can be effectively reached and served.

SUBSTANTIAL: The market segments are large or profitable enough to serve. A segment should be the largest possible homogeneous group worth pursuing with a tailored marketing program.

DIFFERENTIABLE: The segments are conceptually distinguishable and respond differently to different marketing-mix elements and programs.

ACTIONABLE: Effective programs can be designed for attracting and serving the segments.

Important:

The difference delivers a highly valued benefit to target buyers.

Differences to Promote

DISTINCTIVE: Competitors do not offer the difference, or the company can... Continue reading "Principles of Marketing" »

1. What are the differences between micro and macroeconomics?

Microeconomics is concerned with:

• Supply and demand in individual markets
• Individual consumer behavior. E.g., Consumer choice theory

Macroeconomics is concerned with:

• Monetary/fiscal policy, e.g., what effect do interest rates have on the whole economy?
• International trade and globalization

2. Briefly explain how countries gain from international trade.

The comparative advantage provided by differing opportunity costs of various goods in two countries allows both to benefit from mutual trade. This occurs if they specialize in producing (and exporting) those goods that have relatively low opportunity costs compared to another country.

E.g., Canada exports minerals to Spain, and Spain exports... Continue reading "Microeconomics vs. Macroeconomics, International Trade, and Key Economic Concepts" »

Sizing Capacity Cushions

Capacity cushion is the amount of reserve capacity a process uses to handle sudden increases in demand or temporary losses of production capacity.

Capacity cushion = 100% - average utilization rate (%)

Timing and Sizing Expansion

Expansionist Strategy: Timing and sizing of expansion are related if demand is increasing and the time between increments increase

Wait-and-See Strategy: The conservative wait strategy is to expand in smaller increments, such as renovating existing facilities.

Combination of Strategies

Project

An interrelated set of activities with a definite starting and ending point, which results in a unique outcome from a specific allocation of resources.

The Three Main Goals

Complete the project on time, Do not... Continue reading "Project Management Strategies and Techniques" »

Private Limited Company

A company that offers limited liability or legal protection for its shareholders but places certain restrictions on its ownership.

Advantages

• Limited Liability: More people are prepared to risk their money.
• Capital Raising: More capital can be raised as there is no limit on the number of shareholders.
• Control: Control of the company cannot be lost to outsiders.
• Continuity: The business will continue if an owner dies.

Disadvantages

• Profit Sharing: Profits must be shared among a larger number of members.
• Legal Procedures: Complex legal procedures are required to set up the business.
• Restricted Sales: Firms are not allowed to sell shares to the public.

Depreciation: Types and Calculations

The measure of wearing out, consumption, or... Continue reading "Business Concepts: Private Limited Companies, Depreciation, and Organizational Structures" »

Investing in Global Financial Markets

Capital Flows and Investment Opportunities

One of the main features of globalization is the free flow of capital across borders. Investors constantly seek profitable avenues to maximize their return on investment. As an individual, you can deposit money in a bank and earn interest. Banks, in turn, lend this money to individuals, businesses, and governments to finance their projects, profiting from the difference between interest earned on loans and interest paid on deposits.

Investment Options and Risk-Return Trade-off

Investors have various options, each with its own risk profile. Bonds offer interest payments and eventual repayment of principal, provided the issuer doesn't default. Shares, on the other hand,... Continue reading "Investing in Global Financial Markets: Understanding Risk and Return" »