Definitions 2.0 Flashcards
Stocks vs bond
What are they
Stock- A share of ownership in a company
Bond- A loan made to a corporation or government
Bond price formula
coupon 1 / (1 + i) +
Stock price formula
dividend / (i - growth rate)
What are their main functions
Stock- To facilitate the raising of capital for businesses
Bond- to raise money from investors willing to lend them money for a certain amount of time
Differences
Stocks: you own a small portion of a company and grow in resale value. Bonds: you loan a company or government money and pay fixed interest over time.
Marginal benefit vs Marginal costs
Marginal benefit: what you gain by adding one more unit
Marginal cost: the additional cost of the next unit produced
Utility and marginal utility
Utility: satisfaction
Marginal utility: The change in total utility when an extra unit of output is consumed.
Accounting profit
Accounting profit: Money firms gain by selling: Total revenue - total costs
Economic profit
Economists measure a firms econmic profi as a total reveue misnus total opportunity cost, including both explicit and implicit cost.
Just becase you make an accounting profit doesnt mean you are making an economic profit because the Implicit costs.
Economic profit: Total revenue -explicit costs - implicit costs
Explicit costs vs implicit costs
Explicit- inputs that require an outlay of money by the firm
Implicit costs- costs that do not require money spending. (Time, opportunity cost)
Elasticity
The responsiveness of quantity supplied or demanded to a change in one of its determinatives.
Elasticity of demand
The responsiveness of quantity demanded to a change in price
% change in quantity demanded / % change in price
Opportunity cost
the things you gave up
Total opportunity cost: What you pay + what you give up
