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

Essential Concepts in Banking and Monetary Economics

Understanding Bank Reserves and Requirements

Bank reserves are fundamental to the fractional reserve banking system. They serve multiple definitions and functions:

• Reserves Definition 1: Reserves are equal to vault cash plus bank deposits at the Federal Reserve.
• Reserves Definition 2: Reserves are equal to required reserves plus excess reserves.
• Classification: Reserves are classified as an asset to banks.

Required Reserves and Calculations

Required reserves are the amount of reserves a bank must hold against its deposits as mandated by the Federal Reserve.

Example 1: Calculating Excess Reserves

A bank has $10 million in checkable deposits and $2.5 million in reserves. If the required-reserve ratio

Service Pricing: Strategies and Value

Pricing Strategies: How Service Pricing Differs from Product Pricing

Service pricing presents unique challenges due to the variability of prices, the intangibility of services, and the difficulty in recognizing backstage costs. Unlike products, services often have a wide range of prices and quality within the same class. Service organizations use different terms to describe prices (e.g., offers, charges), which can confuse customers. Price can also be an indicator of quality, with higher prices sometimes evoking a perception of higher quality. However, pricing too low may raise questions about quality. Many services, such as restaurants, have higher total costs, including costs beyond paying suppliers.

Related

Understanding Companies

What is a Company?

A company is a legal entity made up of an association of persons, be they natural, legal, or a mixture of both, for carrying on a commercial or industrial enterprise.

Types of Companies by Economic Sector

• Commercial Companies: Dedicated to buying and selling goods.
• Industrial Companies: Dedicated to producing goods.
• Agricultural Companies: Dedicated to cultivating and raising livestock.
• Extracting Companies: Dedicated to the extraction of riches from the earth.
• Service Companies: Dedicated to offering services.

Types of Companies by Size

• Small Companies: Companies with no more than 20 workers. Examples include grocery stores, restaurants, and bakeries.
• Medium Companies: Companies with less than 100 workers. These

The Stock Exchange Market

A bond is a document issued by a government or a company borrowing money from the public, stating the existence of a debt and the amount owing to the holder who must show this document in order to obtain repayment of the loan.

Difference between bonds and stocks is that stockholders are owners of the company they’ve invested in whereas bondholders are only lenders.

Issuer is the identity who borrows an amount of money and pays the interest.

-The principal of a bond is the amount that the issuer borrows which must be repaid to the lender.

The coupon is the interest that the issuer must pay.

Maturity is the date that the issuer must pay.

Indenture is the contract that states all the terms of the bond.

A stock is a piece of... Continue reading "Understanding the Stock Exchange Market: Bonds, Stocks, and Trading" »

Market Structures & Strategic Interactions

Monopolistic Competition

A market in which firms can enter freely, each producing its own brand or version of a differentiated product.

Characteristics of Monopolistic Competition

• Firms compete by selling differentiated products that are highly substitutable for one another but not perfect substitutes. In other words, the cross-price elasticities of demand are large but not infinite.
• Free entry and exit.

Oligopoly

A market in which only a few firms compete with one another, and entry by new firms is impeded. In some oligopolistic markets, some or all firms earn substantial profits over the long run because barriers to entry make it difficult or impossible for new firms to enter.

Cartel

A market in which... Continue reading "Market Structures & Game Theory: Key Economic Concepts" »

Oligopoly Market Analysis

Defining Oligopoly and Market Concentration

Market Share Data

The combined market share of the four largest grocery firms is 76%.

Oligopoly Definition

An oligopoly is a market structure where a few large firms dominate the market.

Competitive Strategies in Oligopolies

Price Competition Tactics

Price competition occurs when a firm reduces prices to gain customers from rival firms or to make goods more affordable. Examples include:

• Reducing the base price.
• Offering special deals (e.g., Buy One Get One Free (BOGOF) offers).

Non-Price Competition Methods

Firms utilize non-price competition to attract and retain customers without lowering prices. Methods include:

• Advertising and marketing campaigns.
• Using loyalty cards to encourage repeat

Dumping And Anti-Dumping Duties

The Period Leading Up to the 2008 North Atlantic Crisis

The 2008 crisis started in the US and then spread to the rest of the world. This was because there was an intense relationship between the US’s shadow banking and the European banks – European banks were financing the American private sector.

The European Union

A crucial factor was the massive expansion of the European banking system (1985-2002).

Megabanks contributed significantly to housing price bubbles and financial bubbles.

The Maastricht Treaty decided to keep responsibility for supervising and rescuing banks at the level of individual member countries rather than centralizing it at the union level.

The United States of America

The Vietnam War and the oil price shocks led to rising... Continue reading "Understanding the 2008 Financial Crisis: Causes and Restructuring" »

CHAPTER 1

4) To participate in a supply chain, a firm must actually handle the physical goods at some point.

7) Inputs to the transformation process are tangible, but the outputs may be tangible or intangible.

9) Of the three flows linking organizations in a supply chain, information and monetary flows always move upstream and physical flows always move downstream.

10) A second-tier supplier is downstream from a first-tier supplier in the supply chain.

13) The drive for efficiency has decreased the level of globalization in the world economy over the last twenty years.

14) E-commerce is the component of a supply chain that is the most susceptible to breakdown.

15) To avoid supply chain problems, firms must manage relationships with their downstream... Continue reading "Key Concepts in Supply Chain and Operations Management" »