BEC-ECON

Question 1

Derived demand

Answer 1

Derived demand is the demand for a good or service that results because it is an input needed in order to provide another good or service for which there is demand. The demand for a good or service is derived from the demand for another good or service. The theory of derived demand explains why an increase in product A increases the demand for resources used to produce product A.

Question 2

cross-price elasticity

Answer 2

The calculated coefficient of cross-price elasticity of demand reflects the proportional change in the quantity of one good expected as a result of a change in the price of the other good. The coefficient is negative for complementary goods and is positive for substitute goods.

Question 3

Elasticity

Answer 3

Elasticity = Percentage change in quantity demanded/
Percentage change in price

Question 4

Elasticity Chart

Answer 4

Less than 1 = inelastic: quantity percentage change is less than the percentage change in price.
Equal to 1 = unitary: quantity percentage change is the same as the percentage change in price.
Greater than 1 = elastic: quantity percentage change is more than the percentage change in price.

Question 5

marginal utility

Answer 5

marginal utility decreases as consumption of a commodity increases

Question 6

total utility

Answer 6

total utility increases (though at a decreasing rate)

Question 7

law of diminishing marginal utility

Answer 7

As an individual acquires or consumes more units of a commodity, the total satisfaction or utility derived increases with each unit; however, the additional (marginal) utility derived from each additional unit acquired or consumed decreases.

Question 8

Marginal Utility Calculation

Question 9

law of diminishing returns

Answer 9

short-term concept (where at least one input is fixed—usually productive capacity). Diminishing returns result where, in the short run, increased input of variables overwhelms the fixed factor(s).

as more units of a variable input are added to fixed inputs, a point is reached at which the continued addition of variable inputs results in decreasing output per unit of variable input. Generally, this diminishing return results when the increasing variable inputs overwhelm the fixed inputs, which results in inefficiencies.

For example, as you put more machinery and personnel in a fixed-size plant, eventually the machinery and personnel will “get in each other’s way” and output will suffer. Add another machine or person and eventually output will actually go down.

Question 10

scale of operations

Answer 10

the returns from increasing the scale of operations in the long-run are less than proportionate to the inputs incurred in increasing the scale of operations.

This is a long-run concept in which all inputs are considered variable and primarily result from problems (communication, coordination, etc.) associated with managing very large-scale operations.

Question 11

long run analysis

Answer 11

In the long run, it is assumed that all inputs to the production process can be varied, including the number and size of production facilities.

Question 12

normal profit

Answer 12

normal profit occurs when total revenue is exactly equal to the sum of explicit and implicit costs. In that case, economic profit is exactly zero, neither positive nor negative. So a firm that is just earning a normal profit is not earning a positive economic profit.

Question 13

Economic Loss Vs. Accounting Profit Loss

Question 14

cartel

Answer 14

A cartel is a group of firms that conspire to make price and output decisions for a product or service; it is overt collusion and illegal in the U.S. A prime example is OPEC, which meets regularly to set output quotas for oil for member oil-exporting countries.

Question 15

Collusive pricing

Answer 15

Collusive pricing occurs when the few firms in an oligopolistic market (or industry) conspire to set the price at which a good or service will be provided. Such collusion typically is carried out to establish a price higher than would exist under normal competition. Overt collusive pricing is illegal in the U.S.A.

Question 16

dual pricing

Answer 16

dual pricing occurs when a good or service is offered at different prices in different markets or market segments. The market/market segment may be within a country (e.g., different pricing of electricity to commercial and residential customers) or across countries (e.g., different pricing for domestic and foreign buyers).

Question 17

Predatory pricing

Answer 17

Predatory pricing is the setting of prices low in an attempt to eliminate the competition. Predatory pricing is illegal under anti-trust laws, as it makes markets more vulnerable to a monopoly.

Question 18

Transfer prices

Answer 18

Transfer prices is the setting of the amount (price) at which goods or services are transferred between affiliated entities.

Question 19

Tacit collusion

Answer 19

Tacit collusion is a type of collusive behavior where firms coordinate their actions without explicitly communicating or reaching an agreement.

Question 20

injections

Answer 20

injections are the sources of amounts added to domestic production that do not result from domestic consumption expenditures, including government spending, government subsidiaries, investment spending, and amounts received from exports, but not amounts paid for imports.
In a macroeconomic free-market flow model

Question 21

leakages

Answer 21

leakages result when income is used for purposes other than domestic consumption. Both savings and taxes (as well as payments for imports) are uses of income for purposes other than domestic consumption.
In a macroeconomic free-market flow model

Question 22

Comparative advantage

Answer 22

Comparative advantage exists when one entity has the ability to produce a good or service at a lower opportunity cost than the opportunity cost of the good or service for another entity. Comparative advantage is the basis for international trade

Question 23

Dollar Appreciation

Answer 23

An appreciation in the value of the dollar against the currency of the country in which the investment is located would reduce the dollar value of the foreign direct investment, thus increasing the likelihood of the investment suffering a loss. If the dollar appreciates against the foreign currency, the foreign currency will exchange for fewer dollars than before the appreciation. Therefore, the conversion of the foreign currency value of the investment into dollars will result in a lower investment value in dollars and a greater likelihood of a loss.

Question 24

Capital Market

Answer 24

A market in which financial securities are traded.
A capital market brings together the providers of capital (investors) and the users of capital (“borrowers”).
Providers invest to earn a return on the funds they provide.
Users seek funds to finance their investments, operations, or for other purposes.
Capital markets facilitate the interaction of providers and users of capital.
Generally, capital markets consist of three specific major component markets:
Stock market
Bond market
Money market

Question 25

Eurodollar market

Answer 25

Eurodollars are created when a U.S. dollar deposit is made outside the United States and is maintained in U.S. dollars.
Eurodollars provide short-term and intermediate-term loans, less than five years in maturity, denominated in U.S. dollars.
Eurodollars provide an alternative to domestic banks for financing by international firms.
Generally, the cost of borrowing in the Euromarket will be less than through a domestic bank because such lending activity is less regulated.

Question 26

International bond market (Eurobonds)

Answer 26

Offers long-term loans outside the home country of the borrower.
Bonds are offered in most major currencies.
Bonds avoid most government regulation.

Question 27

world’s largest exporters of goods and services

Answer 27

The largest exporters are China, Germany, the U.S., and Japan, in that order.

Question 28

How to Become Global?

Answer 28

Importing/exporting
Foreign licensing
Foreign franchising
Forming a foreign joint venture
Creating or acquiring a foreign subsidiary

Question 29

importing and exporting fact

Answer 29

Goods with a low value-to-weight ratio are less likely to be suitable for importing than goods with a high value-to-weight ratio

Question 30

Foreign licensing

Answer 30

Foreign licensing is the granting to a foreign entity the right to use intangible property (e.g. patents, copyrights, formulas, etc.) in return for a royalty payment.

Question 31

repatriation

Answer 31

In the context of international business, repatriation is concerned with the movement of funds from a foreign country to the home country of an entity. For a corporation, repatriation is commonly concerned with moving profits from a foreign operation to the parent’s home country. If the foreign country imposes restrictions on repatriation of profits (or other funds), this may limit the desired flow of cash from foreign operations (subsidiaries) to the parent and would be a consideration in a company’s cash flow analysis.

Question 32

generic strategy identified by Michael Porter

Answer 32

The three generic strategies he identified are cost leadership, differentiation, and focus. That provides competitive advantage

Question 33

five forces framework developed by Michael Porter

Answer 33

The five forces framework developed by Michael Porter is used for determining the nature, operating attractiveness, and probable long-run profitability of a competitive industry.
Fives Forces:
1. Threat of Entry into the Market by New Competition
2. Threat of Substitute Goods or Services
3. Bargaining Power of Buyers (Customers) of the Industry Good or Service
4. Bargaining Power of Suppliers of the Inputs Used in the Industry
5. Intensity of Rivalry

Question 34

PEST

Answer 34

PEST is a means of analyzing the external macro-environment (political, economic, social, and technological) in which an entity operates or may operate.

Question 35

PESTEL analysis

Answer 35

political, economic, social, technological, Environmental factors and Legal factors

Question 36

STEER

Answer 36

Socio-cultural, Technological, Economic, Ecological, and Regulator factors.