Introductory Economics Cheatsheet

Problems by Command 1. Information collection 2. Principal-agent 3. Disagreement among multiple decision-makers. Arrows’ impossibility theorem. Paradox of voting. 4. Enforcement Coordination by Market Princes as signals of scarcity/abundance Induces coordination Requires much less info No enforcement costs No principal-agent problem No problem with multiple decision makers Qualification: some command systems exist within a market (eg firms) Public Good Has free-rider problem due to non-excludability. Can only be provided by a coercive authority that can force users to pay for these goods. Taxes. Collective GoodsProvide benefits for a group. Cartels and Unions Has free riding problem. Prevent by sanctions Common Resources Non-excludable but exhaustible Natural resources goods Lack of well-defined property rights encourages overuse. The tragedy of the commons. Solve by asserting ownership rights over common resources. Coarse theorem Markets generate themselves for property trans fer that internalize externalities. Adverse selection & Moral hazard Market price based on expected quality Reward people for not maintaining quality High quality sellers drop out Cycle continues Market collapse FDI promotes technology transfer without moral hazard.Equilibrium – no one has an incentive to change their behavior. Price ceiling Cause a shortage due to excess demand Leads to rationing or preferential allocation, long queues, inefficiency. Those who do get will benefit from the lower prices. Price floor Eg Minimum wage Only those workers who don’t lose their jobs benefit from the higher wages. Consumer surplus When price goes down, CS increase due to 2 reasons. Existing buyers pay less. More buyers are able to enter market. Producer surplus Markets select low cost suppliers. Only those whose costs of production are below the market price enter.When price goes down, ‘marginal seller’ drops out. When price goes up, PS increases due to 2 reasons. Existing producer get a higher price. More producers can enter. Total welfare = CS + PS Govt intervention decreases this Factors of demand Income & substitution effect Change in tastes Expectation of future prices Change in number of buyers Factors of supply Change in technology Change in input prices Expectation of future prices Change in number of sellers Elasticity Price elasticity of demand for a good is the % change in demand when the good’s price falls by 1%. Elasticity along a linear demand curve decreases with a decrease in price.Factors affecting elasticity of demand Number of substitutes/whether the good is a necessity/time frame/broadness of category Income elasticity of demand is the % increase in its demand for a 1% rise in income. Indifference curve Non-lexicographic and non-satiation Convex to origin – preference for variety Cant cross each other due to consistency and transitivity Marginal rate of substitution(MRS) Negative of an indifference curve†™s slope at any point Equal to the ratio of marginal utilities of the 2 goods at that point Slope of budget line is the negative of the relative prices of the 2 goods.At tangent, slope of budget line and slope of indifference curve must be equal. MRS=relative prices at this point The ratio of marginal utility to price is equal for both goods at the point chosen (equimarginal principle) Income and substitution effect Cost curve AFC=TFC/Q, AVC=TVC/Q, ATC=AFC+AVC AFC declining with Q. AVC first falls then rises. U shaped. Rising marginal cost. When MCMC. No supply curve. MC Pricing P=MC, lead to losses for natural monopoly, which govt can subsidize. But tax has its own deadweight loss. P=ATC , zero profits. Alternative, public ownership Price discriminationIncrease monopolist profits First degree – extract entire CS, socially optimal but unlikely Second degree – Charge buyers based on observable characteristics Third degree – separated markets Quantity discounts Contestable Market No barrier to entry Maintain monopoly only due to the fact that it entered first P=MC, zero economic profits Durable Goods Monopoly MC=0 Compete against its future price Cartels and collusion Incentive that monopoly profits are higher Each has an incentive to sell more than the agreed amount, resulting in a collapse of the agreement. Bertrand duopoly Assumption constant MC.Equilibrium at AC=MC. Naive thinking and no capacity constraint and price easily adjusted Sweezy model Each firm assumes that if it cuts its price, this will be matched by all its rivals while if it increase its price, it will not be matched. Perceive demand curve to be very inelastic below the existing price and very elastic above existing price. Result in price rigidity Reverse kink Each firm assumes that its price increases will be matched by all rivals, while its price cuts will not. Demand curve becomes elastic below the existing price as the cut speedily increases the demand for this firmà ¢â‚¬â„¢s product.Inelastic above the existing price. Result in price instability. Likely during depression. Competition in output Cournet Model Supposes wrongly that other firms will not react to its own output decisions. Will not result in zero-profit outcome. MR=MC. Monopolistic competition Large number of sellers with differentiated products No barriers to entry Each firm faces a downward sloping demand curve Short run, try to max profits by MR=MC. Due to free entry, more firms enter in long run as long as positive economic profits are made. Shifts demand curve to the less are market share reduced. Long run equilibrium, P=AC.Not at minimum of AC curve, thus inefficiency as each firm has excess capacity. Provide more variety though. Game theory Dominant strategy equilibrium No incentive to deviate as none of the players can do better by choosing a different strategy. Nash Equilibrium Each player has no incentive to deviate by himself. Each guess what other player choose. Coordinat ion problem Multiple equilibrium Solve by convention Focal point – higher payoff for 1 equilibrium Zero-sum games Solve by maximin rule – maximize his minimum payoffs. Repeated games Grim trigger strategy cannot work if the game is repeated a known finite number of times.If infinitely, can sustain if they do not discount the future heavily(sufficient weight to future punishments). Discount factor > 1/3. Sequential game Backward induction – work backwards to solve Subgame perfect Nash equilibrium – additional property of ruling out empty threat GDP – the market value of all final goods and services produced within a country in a given period of time Relies on market prices Includes market value of the stream of services from durable goods Miss out value of non market services Excludes transfer payments Consumption + Investment + Government spending + Net exportY=C+I+G+NX GDP deflator = (Nominal GDP/real GDP)*100 GDP per capita flawed as a welfare me asure as it excludes value of leisure, clean environment, and safety. CPI measures the cost of a fixed basket of goods bought by a typical consumer. Overstates cost of living because of substitution bias. Introduction of new goods and thus increased living standards is not reflected. Quality changes is not measure. GDP deflator includes goods not bought by typical consumer. CPI includes imports. Real interest=nominal interest – inflation Productivity is a key to rapid growth. Physical capitalHuman capital Natural resources Technology Y= AF(L, K, H, N) Productivity is given by Y/L = AF(1, K/L, H/L, N/L) Technology progress continuously expands the resource frontier. Phases of rapid growth have occurred when a technological innovation opens up a new elastic supply source. Eg Industrial revolution, Railway boom, IT. Policies to promote growth Encourage savings and investment. Diminishing marginal productivity of capital implies that high saving will no longer lead to fast growth beyond a point. Convergence effect. Encourage FDI. Builds up physical and human capital accumulation.Has learning effects through tech transfer and positive externalities. Education. Secure system of property rights Lack of corruption or political instability Pursuing free trade Population growth can lead to lower capital-labor ratio which might decrease productivity Also inefficiency in human capital accumulation as same educational facilities spread thinly Large families may keep woman out of labor force which reduces total productivity C and IM tend to increase as national income rise. So C= C+cY, IM=IM+mY where c and m are marginal propensity to consume and import. An increase in GDP of $1 increases C by c and IM by m. c,m

Finance Essay Example | Topics and Well Written Essays - 1000 words - 9

Finance - Essay Example (as to differentiate it to Private Finance), Housing and construction (availability of infrastructures), Output, capacity, and capacity utilization of existing and planned infrastructures, Merchandise trade, National accounts, Labor market, Population, Prices and Wholesale and Retail trade Some specific items under the broad categories mentioned includes the amount of potential customers and their preference, trends in economic growth and operating expenses such as wages, costs of local supplies, taxes and other expenditures, operations and profitability of competitors, planned economic ventures and differences in currency denominations. Also included is the determination of availability of resources, inflation rates, external debt payments as a measure of the credibility and involvement of the governing institutions of the country. Equally important issues that must be considered are risks such as insolvency of the buyer, risk of protracted default or the failure of the buyer to pay the amount due within six months after the due date, risk of non-acceptance and surrendering economic sovereignty. There are also political risks (which would influence economic conditions) that must be taken into consideration such as the risk of cancellation or non-renewal of export or import licenses, conflict risks, risk of expropriation or confiscation of the importers company, risk of the imposition of an import ban after the shipment of the goods, transfer risk or the imposition of exchange controls by the importers country or foreign currency shortages. The World Bank currently has a numerical measure/ ratings in determining the ‘business friendliness’ of countries. It would seem that forecasting would require voluminous data. This would indeed be the case for some forecasting projects. However, some ventures would only require some data depending on the forecast models and equations they are using. There are many reasons why business firms are going global foremost

Organizational Leadership Term Paper Example | Topics and Well Written Essays - 3500 words

Organizational Leadership - Term Paper Example Description of situation The organizational transformation Before moving into the realms of the organizational transformation a clear picture of the main parameters regarding the organization entails a necessary significance. The prime parameters encircling the transformation of the organization depend upon people, technology and structure (School of Business, n.d). People Connection to the external environment is done by the people and people are the holders of multi identity in different environment. People can be directly influenced by the external environment despite the fact that the public pressure groups or culture can divert the people’s behavior and attitudes. So people play a dominant role in the organizational transformation. To what extent people play an important part in the company profile of Hewlett Packard (HP) will be discussed in the analysis section (School of Business, n.d). Technology: Technology plays a significant role in the discussion of transformation of organization. Depending upon the complexity and level of technology adopted by the competitors firms must formulate its strategies accordingly in order to develop its technology and simultaneously formulate the profit structure. Although the main concern will be to look upon development of technology depending upon the customers’ need (School of Business, n.d). Structure: The structure of the organization is usually affected by the external environment. It has been found out that when external environment is highly skeptical or uncertain then the optimal requirement is to adjust the internal environment and make it flexible so that it can easily adapt to the... From the discussion it is clear that considering the complex transformation of today’s nature and economy of market the transformation of the business organization has become a very common issue. So the issue of transformation in the organizational leadership in Hewlett Packard will be the prime focus in this paper.As the paper stresses  connection to the external environment is done by the people and people are the holders of multi identity in different environment. People can be directly influenced by the external environment despite the fact that the public pressure groups or culture can divert the people’s behavior and attitudes. So people play a dominant role in the organizational transformation. To what extent people play an important part in the company profile of Hewlett Packard (HP) will be discussed in the analysis section.  Technology plays a significant role in the discussion of transformation of organization. Depending upon the complexity and level of t echnology adopted by the competitors firms must formulate its strategies accordingly in order to develop its technology and simultaneously formulate the profit structure. Although the main concern will be to look upon development of technology depending upon the customers’ need.  The structure of the organization is usually affected by the external environment. It has been found out that when external environment is highly skeptical or uncertain then the optimal requirement is to adjust the internal environment and make it flexible so that it can easily adapt to the uncertainties of the environment.

Check Your Understanding Assignment Example | Topics and Well Written Essays - 750 words

Check Your Understanding - Assignment Example Destructive conduct in made by a person and endorsed by the community, members. Natural morality revolves around human evolution than what has been acquired from the environment. Moral behavior is outgrown from the animals. The human beings are social being and therefore they derive moral out of interactions and are passed to the next generation in life. Empathy is the nature of animals and human beings are not excluded. They walk together in groups and also hunt in groups out of these interaction they inherit morality. On the contrary transcendent morality is the morality that goes beyond the world and the visible things that can be seen. It goes beyond the physical world and tries to explain what bring people together in marriage sports and pledging their allegiance to the state. Moral judgment is the process in which character traits, belief systems motives and opinions are measured against the standard good. There are standard set that are used for judgment failure to meet these standards will lead to automatic disqualification. These standards are based on the individual’s knowledge, integration and experience. As moral judgment primarily focuses on discussion, aesthetic judgment focuses the beauty and ugliness which are part of life. Beauty and ugliness lack the standards of measurement but depends on how they are perceived by different people. Perception determines how an object is beautiful or ugly. The completeness and proportionality of a beautiful object is difficult to arrive at. Behavior can be considered in one context as beautiful while in a different context as ugly it depends on the perception and interpretation in the mind. Moral objectivists are those people that believe that reality is independent of consciousness. Human beings have direct contact with the reality though the sense of perception and

Capacity Planning and Performance Modeling Essay

Capacity Planning and Performance Modeling - Essay Example I have experienced working with work planner 1.40. The software helps to plan a wide range of activities for instance trips, events, vacations, meetings or other daily works. It uses intuitive charts to represent data, and a planner can see the plan at a glance. Moreover, the planner can print a chart report or a list report depending on their need. Therefore, the software is easy to use, does not have limits on the planning numbers, and is time saving and fast. Mimosa is software that is widespread used for scheduling and course planning in a variety of school and university regardless of its size. Platform: Windows 98, Windows 2000, Windows XP. System requirements: 12 MB on disk. Language: English. Performance measurement software helps to test how the system performs under specific workload. It gives feedback, which is essential for managerial decisions. Moreover, measurement also enables users to improve the software process. It assists in monitoring planning and tracking the software project and evaluates the quality of the software thus created. I chose active strategy software and strategy scorecard. This is because of the availability of this software, coupled with the self-explanatory demos available online. This software enables the database to be placed on a network from which it can be accessed by many users. Security is enhanced by the operating system, and controls are enhanced on whom can run the program. In this exercise, I have learnt the crucial role played by modern technology particularly the advance in the software arena, in key management decision making. It is paramount for organizations to invest to conduct capacity planning despite the fact that servers are cheap and available. Moreover, I have learnt the core foundations and requirements of a successful capacity planning system and generally, the importance of capacity planning in an

In what way might The Verb to Kill by Luisa Valenzuela be a political Essay

In what way might The Verb to Kill by Luisa Valenzuela be a political allegory - Essay Example It demonstrates how politicians get riches from the poor people, give empty promises and will always come back ‘with a different story for the poor to give them the votes. The verb to kill therefore demonstrates the capitalism of our politicians who are for selfish gains at the expenses of the lives of the electorates. â€Å"The verb to Kill† is a metaphor for the dehumanizing nature of the politicians. In this story, the poor girls who are also the narrators are eaten away or consumed by the daily lifestyle of the old man who is the protagonist. In this perspective, the writer of this article demonstrated how the individuals are â€Å"consumed† by the powerful politicians and leaders. The concept of consumption has been used in this story as a metaphor or allegory in the store to represent the high level of exploitation that these individuals are experiencing. When the writer of this article portrays the girls as being eaten by the daily life of the old man, the writer of this article outlines the kind of activities of the old man that are not beneficial to the young girls. This is unfortunate despite the fact that the young girls play an important role in the story and are very kind towards the man. The main narrator in â€Å"the verb to kill† asserts that their neighbor, the old man is a â€Å"degenerate murderer† and hence is fascinated by the kind of life style that they perceive this old man is leading. They also assert that the old man may not just be a rapist but also someone who eats â€Å"that last breath† (Valenzuela). In this perspective, the narrator claims here that the actions of the old man and his daily activities consume them. In this text, the idea of consumption has been used severally in the text from the beginning through to the end. The idea of consumption here therefore represents the nature of the old man and the notion of destruction and absorption of the girls by the old man neighbor. This is a llegory for the nature of some politicians who play politics just for their own benefits even if it means overlooking the morals and the norms of the society. It also represents the immoral nature of the politicians and the political game in general which demands for the politicians to leave different lives and compromise their morality at the expense of the society and those whom there are close to. The narrators have also demonstrated the fear for the idea of the old man rather than his reality. The idea of consumption and the presentation of the man as vampire are two causes of worry for the poor girls. This is a phenomenon that is common across the worlds’ politicians and their subjects. In politics people do not win because of what they are but because what the ideas they present to the people. The ideas that politicians often presents to the electorate as well as their past deed play an important role in their success. The electorates are often afraid of the idea and no t the person. This explains why the narrators fear this man’s idea and not his reality as their neighbor and an old man. The action of by the girls also demonstrates how they do not care about the old animals though they complain about the old man because of the nature of vampire. In this story, it is observable that there are three levels of individuals in the society. The top most individuals represented by the old man, the middle represented by the

Impact of sea ice loss on Arctic ecosystem(Indigenous people, marine Essay

Impact of sea ice loss on Arctic ecosystem(Indigenous people, marine birds) - Essay Example This paper explains the effects that will cause problems and obstacles for the indigenous people living in these areas along with them the wildlife ecosystems such as the marine birds. This paper will also look into the possible environment that the Arctic community will eventually live through. The Impact of the Warming Arctic The change in the climate and the effects it has caused in the Arctic region may possibly be one of, if not the most critical ecological concern threatening and endangering the Arctic ecosystem.  This region, the northernmost part of the Earth, is home to various native communities whose way of life and daily activities is shaped, influenced and based on the environment and the surroundings. This area is also home to the abundant wildlife that thrives there. The Arctic region is naturally and ethnically very special and delicate. However, their sensitivity can be a problem. Because a slight change in the overall climate and weather in this zone, even as litt le as half a degree, the gradual global warming could risk the life of an entire society and culture. The rapid rise in the temperature is currently becoming more and more evident, resulting in the intensification of the loss of sea ice in the Arctic ecosystem. Now, it is a fact that the Arctic inhabitants were challenged in the past as they needed to adapt to the extreme cold and freezing weather with sub-zero temperatures. In time, they were able to adjust and for a time, were thriving in this Arctic community. However, the recent gradual changes in the climate could mean that the wildlife biodiversity and the communities who are living in this area will have to be faced with new obstacles and challenges. The several groups of indigenous people such as the Inuit are currently dealing with a number of problems and difficulties in their everyday lives. The drastic negative effects are now becoming a serious issue and concern for these people, as they fear that soon, if no proper cou rse of action will be taken, then their entire society and the whole entire community will no longer thrive and exist and will be gone forever. During the last decade, the people in the region have noticed different environmental changes. One of these is the loss of a great amount of ice sheets and when ice melts, what remains is the dry harsh desert. Another environmental problem is the thinning of the ice, which has resulted to difficulty in traveling and stranded hunters. Arctic hunters are having a harder time building igloos, which are impermanent or emergency shelters due to the change in the snow conditions. They are also starting to be more careful when chasing and going for animals. These animals have also changed. Caribou and other animals have decreased greatly in population. They also appear to be unhealthier, looking much skinnier than they used to. In addition, because of the increasing temperatures and the fact that Arctic people are not used to this as they are accus tomed to the cold, reports of sunburns and rashes have increased. The melting permafrost, or the permanently frozen land, has damaged and destroyed a couple of houses and roads, and have also caused erosion, unsteadiness and landslides. Moreover, since rain is less occurring, water from a few rivers and ponds are not anymore