B5 Flashcards
Nominal =
today’s dollar (doesn’t measure real impact)
GDP
- total value of all final goods and services
* *NOT BARTERING
Price Index
(Nominal GDP) / (GDP Deflator) x 100
Economic Growth =
Real GDP Growth
Business Cycle Stages
- Expansionary
- Peak
- Contractionary
- Trough
- Recovery
Recession
*two consecutive quarters of falling national output
Long-Run Aggregate Supply Curve is
vertical
Potential Level of Output
- determines expansion or recession
* full maximization of resources (capital and labor)
Aggregate Level Determines _______
_______ Determines ________
- price
* price; quantity
When dealing with foreign currency exchanges, think in terms of the
foreign country and its demand (not the demand in the home country)
Multiplier Effect
1 / (1 - MPC)
(1 - MPC) = MPS
Fiscal Elements a Government Can Use
- taxes
2. government spending
GNI is equal to
GDP
Two Methods to Calculate GDP
- expenditure approach
2. income approach
Expenditure Approach for GDP
- Government Purchases
- Investment (gross private domestic)
- Consumption (personal)
- Net Export (Import)
Income Approach for GDP
*not expenditure approach I ncome of proprietors P rofits of corporations I nterest (net) R ental income A djustments for net foreign income T axes (indirect business taxes) E mployee compensation D epreciation (capital consumption allowance)
Depreciation can also be known as the
capital consumption allowance
Net Domestic Product =
GDP - depreciation
GNP =
made by citizens anywhere in the globe
Disposable Income
*income less personal taxes
Types of Unemployment
- Frictional: workers finding the right job (young workforce)
- Structural: skills needed (technological updates)
- Seasonal
- cyclic (tied to economic performance)
Unemployment Rate =
number unemployed (seeking) / total labor force (seeking & employed)
Natural Rate of Unemployment =
Frictional + Structural + Seasonal
Full Employment =
NO CYCLICAL unemployment (doesn’t mean 100% employment)
Inflation Rate Calculation
[CPI(1) - CPI(0)] / [CPI(0)] x 100
Two Types of Inflation
Demand Pull
Cost Push
Monetary Assets/Liabilities
*denominated in fixed amounts; do not change with deflation or inflation
Inflation Effect on Monetary Assets/Liabilities
Assets: bad, could have gotten more
Liabilities: good, don’t have to pay as much
Phillips Curve
*inverse relationship between inflation and unemployment
Budget Deficit vs. Budget Surplus
Deficit: preventing a recession (spending more than taxes)
Surplus: preventing inflation (spending less than taxes)
Nominal Interest Rate
interests rate including inflation
Real Interest Rate =
Nominal Interest Rate - Inflation
*only affected by supply and demand (factors out inflation)
Nominal Interest Rate and Inflation have what type of relationship?
directly correlated
M1
*coins, currency, checkable deposits
M2
M1 + savings, CDs, money market deposits
M3
M1 + M2 + larger savings and CDs
3 Methods of Monetary Policy
- money supply (buy/sell government securities)
- required reserve ratio
- discount rate
Demand for Money is _________ related to interest rates
inversely
Supply of Money Line on a Graph is
vertical; set by the Federal Reserve
Fundamental Law of Demand
*price and quantity are inversely related
Substitution Effect
*consumers tend to purchase more (less) of a good when its price falls (rises) in relation too the price of other goods
Income Effect
*when only prices drop, PP increases and more of the lower products are purchased
Where do surpluses and shortages occur?
- surpluses are above equilibrium
* shortages are below equilibrium
Market Clearing Idea
*the market will eventually be cleared of all excess supply and demand (all surpluses and shortages) assuming that prices are free to change
Can the effect of changes in both supply and demand be known for each factor (price and quantity)
Not always for ever factor
Price Ceilings vs. Price Floors
Ceilings = Shortages Floors = Surpluses
Price Elasticity of Demand
= (% delta in quantity demanded) / (% delta in price)
PERCENTAGE, not amount
Midpoint Method for Price Elasticity
- works for numerator and denominator
* (difference/sum of the two points)
Inelasticity, Elasticity, Unit Elasticity
Inelasticity: 1
Unit Elasticity: = 1
Two Factors on Elasticity
- number of substitutes
* time (more products available after a certain period of time)
Effects on Total Revenue for Elastic and Inelastic Products
Inelastic: total revenues increase with price increases
Elastic: total revenues decrease with price increases
(opposite for price decreases)
Price Elasticity of Supply
= (% delta in quantity supplied) / (% delta in price)
Cross Elasticity
= (% delta in number of units of X demanded/supplied) / (% delta in price of Y)
Cross Elasticity: Substitute Goods vs. Complementary Goods
Substitute: positive coefficient
Complementary: negative coefficient
Income Elasticity of Demand
= (% delta in number of units of X demanded) / (% delta in income)
Income Elasticity of Demand: Luxury vs. Inferior
Luxury: positive coefficient
Inferior: negative coefficient
In the long run, all costs are
VARIABLE
Marginal Product of Labor =
(delta total output) / (delta labor)
Law of Diminishing Returns
*output increases, but at a diminishing rate at some point
Average Fixed Cost
= FC/Q
Average Variable Cost
= VC/Q
Average Total Cost
= TC/Q
Marginal Cost
= (change in total cost) / (change in quantity)
What are marginal costs dependent upon?
ONLY variable costs (not fixed costs at all)
Produce at the point where MC
intersects the lowest point in the curve of TC
left: economies of scale
right: diseconomies of scale
Produce at the point where …
MC = MR
Perfect (Pure) Competition
- all equivalent products
- no differentiation
- price takers
- no barriers to entry
- demand is perfectly elastic (horizontal)
Monopolistic Competition
- similar products
- product differentiation
- few barriers
- some influence on price
- highly elastic, but downward sloping demand curve
- focus on enhanced product differentiation
Oligopoly
- few firms
- differentiated
- large barriers to entry
- kinked demand curve due to potential price drops
- INTERDEPENDENT firms
- control over quantity and price
KINKED DEMAND CURVE
Monopoly
- one firm
- insurmountable barriers
- price setters
- supply is vertical
- focus on profitability
- usually will result in lesser quantity
ALL FIRMS WILL PRODUCE UP UNTIL MR =
MC
Factors of Production =
*labor, capital, land
Derived Demand
= demand for the factors of production
Monopsony
*only one employer in a market (lower wages and lower levels of employment)
Unions and Wages
Unionized Workers: wages increase but restricted supply
Non-unionized workers: fall in sector that is non-unionized due to people trying to find jobs from restricted union sector
SWOT Analysis
Strengths
Weaknesses
Opportunities
Threats
Major Strategies for Value Chain Analysis
- core competencies
- industry structure
- segmentation analysis
Porter’s Five Forces
- barriers to entry
- intensity of competition
- existence of substitutes
- bargaining power of customers
- bargaining power of suppliers
When is competition strongest?
- when a market is not growing very fast
* it is relatively low in a quickly-growing market
Two Major Types of Competitive Strategies
Cost Leadership Advantage **build market share **match price of rivals Differentiation Advantage **build market share **increase price
Best Cost Provider =
*combination of cost leadership and differentiation
Cost Leadership Analyzed
Good: inferior products
Bad: overlooking technological advances
Differentiation Analyzed
Good: customers see value
Bad: cost > benefit
Niche Strategy Analyzed
Good: competitors have ignored the niche
Bad: easy to copy
Three Major Forms of Value Chain Analysis
- Internal Cost Analysis (variances)
- Internal “Differentiation” (benefit > cost)
- Vertical Linkage Analysis (EXTERNAL in both directions)
Four General Steps in Value Chain Analysis
- Identify Value Activities
- Identify Cost Drivers Associated with Each Activity
- Develop a Competitive Advantage by Reducing Cost or Adding Value
- Exploit Linkages among Activities in the Value Chain (SYNERGIES; segmentation analysis)
Porter’s Four Factors that Impact Global Competitive Advantage
- Conditions of the Factors of Production
- Conditions of Domestic Demand
- Related and Supporting Industries
- Firm Strategy, Structure, and Rivalry (laws and regulations
Supply Chain management is
*a collaborate effort between buyers and sellers
SCOR Model
- Plan (demand requirements)
* *assessing the ability of suppliers - Source (acquire resources)
- Make (conversion costs)
- Deliver (A/R is here)
Benefits of SCOR
*decrease costs and increase profits
