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

Indirect Manufacturing Costs: A Detailed Breakdown

Concept: Indirect costs are expenses related to the production process that cannot be directly assigned to a specific product. These costs are not classified as direct materials or direct labor. The reasons for this indirect allocation include:

• Insignificant quantitative relation to total direct costs: The cost is too small to justify direct tracking.
• Minor consumption: Determining the exact amount consumed is more expensive than the benefit gained from the information.
• Theoretical impossibility: Common costs from joint production processes cannot be easily separated.
• Lack of explicit cause-effect relationship: These costs are necessary for production but cannot be directly linked to individual

Primitive societies used barter as a form of exchange. As trade expanded, the need arose to identify objects or agreements to facilitate trade and account for the value of goods. Cereals, salt, shells, seeds, cocoa, and other items were used as money in different cultures over the centuries.

Evolution of Money

To be practical, items used as money should be easily transportable, divisible, storable, and non-perishable. These features eventually led to the use of metals as a means of payment. The first coins appeared in Greece in the late 7th century BC, and the drachma was the most widespread currency in ancient times for centuries. The subsequent use of paper money dates back to China in the 9th and 10th centuries and is closely linked to the... Continue reading "Understanding Money: Origins, Evolution, and Functions" »

Adam Smith: A Key Theorist of Economic Liberalism

The Wealth of Nations was a milestone in the history of political economy. It is an investigation into the nature and cause of the wealth of nations.

Smith believed that private enterprise should act freely. Free competition leads to low prices, high technology innovations, and thus lowers the cost of production and helps overcome competitors.

Smith, instead of focusing on agricultural productivity problems, takes productive activity, understood as "work aided by capital," as the central economic concern.

According to Smith, the proportion by which the product of this work is divided among a greater or lesser number of consumers is what makes a nation more or less rich.

The Division of Labor

The effectiveness... Continue reading "Adam Smith and the Wealth of Nations: Key Concepts" »

Technical Progress and Economic Growth

Economic growth can raise the general standard of living as national income increases at a higher rate than the population. While limited growth can be achieved in the short, medium, and long term with minimal technical progress, technical progress is the primary driver of long-term growth. Technical progress is based on:

• The development of new production and communication techniques based on specific changes in equipment technologies.
• Increased factor productivity (e.g., improved healthcare).
• The development of new products, leading to the emergence of new companies.

Remuneration of Productive Factors

Markets for factors of production: By setting the price of factors, the market contributes to resolving two... Continue reading "Technical Progress, Economic Growth, and Factor Remuneration" »

Key Economic and Industrial Terms

Industrial Revolution

A process involving the transition from a traditional economy based on agriculture to an economy based on industry and machines, allowing for the manufacture of goods in large quantities.

Marketing

A set of principles and practices designed to increase demand for a product.

Industrial Restructuring

The process of modernization of an industry that requires a complete reorganization of the work process and the structure of the company.

Industrial Area

An area designated for the installation of factories and warehouses.

Technology Park

A space designed to encourage the creation and development of innovative enterprises.

Heavy Industry

Provides products necessary for the development of other industrial... Continue reading "Economic and Industrial Concepts Defined" »

Understanding SUNAT's Tax Withholding and Perception Systems

Tax Withholding Mechanism

Withholding refers to a proof of payment issued by certain taxpayers, designated by SUNAT as withholding agents. By order of supervision, these agents perform the retention of a percentage of the Sales Tax (GST) from their suppliers when making payments for operations. In this sense, they cancel the transaction amount less the amount withheld.

Similarly, SUNAT can determine the exclusion of a retention agent. Since retention is applied to the GST, this scheme does not apply to transactions involving the sale of goods that are exempt from or unaffected by this tax.

The withholding amount is 6% of the purchase price. This means the purchaser pays the total amount... Continue reading "Peruvian Tax Withholding and Perception Systems Explained" »

Understanding Economic and Political Systems

Inflation - A continued rise in prices. A deflationary economy - is a steady and general decline in the price level. Hyperinflation - Prices rise over 100% in a year, a breakdown of the system. Overproduction - Excess production or production in excess of market demand. Speculate - To do business, usually by purchasing goods whose price is expected to rise short-term, with the sole purpose of selling at the right time to make a profit.

The Stock Market Crash and the Great Depression

The Stock Market Crash was the most devastating fall in the history of the U.S. stock market, taking into account the full scope and the length of its aftermath. The Great Depression originated in the United States after... Continue reading "Understanding Economic and Political Systems: Key Concepts" »

Defining Economic Growth in Real Terms

Why has economic growth been defined in real terms? How do you achieve it? Even if production is valued in more stable monetary units or during a recession, it does not necessarily mean that there is growth.

Sustainable Growth vs. Expansion

Why is the term "sustainable growth" emphasized in the definition of economic growth? It is used to differentiate between "growth" and "expansion." Expansion is a trend of increasing economic parameters that may not be maintained over time.

Two Definitions of Economic Growth

What differentiates the two definitions of economic growth? One definition works with real national income in global terms, and the second with real national income per capita.

Economic Growth, Political,

Pricing Strategies

Price is the consideration that the consumer is willing to give in exchange for a product.

Three Key Pricing Strategies:

1. Penetration Pricing: Entering the market with low pricing, often in a "closed market." The disadvantage is that these prices are below the optimal price, making it difficult to raise them later. Raising prices after establishing a low price can lead to a decrease in demand.
2. Maximum Pricing: Setting very high prices to maintain a premium image, potentially sacrificing sales volume. This policy is often short-term, as competitors may offer lower prices.
3. Undertaking Prices: This strategy doesn't define the true price initially. It allows for price increases without significant impact because the initial price wasn'

Market Equilibrium and Its Variations

Market Equilibrium: Because the slopes of the demand and supply functions are contrary, there will be a point where they intersect. This point is called the equilibrium quantity. The market equilibrium price represents an agreement between buyers and sellers where the amount consumers want to purchase matches the amount that producers manage to sell.

Elasticity

Elasticity measures changes in quantities demanded or offered in relation to good prices, other good prices, other prices, or consumer income. It is a proportional ratio between the variation in the quantity and the proportional variation of the variable we want to compare it to.

• Demand Price Elasticity: A ratio that measures the relative changes in