Economic 4 Flashcards
Key Objectives of Supply Chain Management
Key Objectives of Supply Chain Management
a. To improve communications at all levels of the supply chain to create an uninterrupted flow of materials and products.
b. To reduce inventory levels while improving customer service levels.
c. To reduce the supplier base while developing supplier relationships.
d. To coordinate logistical activities to ensure that trade-offs between the various activities are understood to allow for the lowest possible logistical cost.
e. To arrange credit terms and methodologies of exchanging funds across entities and within supply chains.
The Benefits of Globalization
The Benefits of Globalization
a. Foreign direct investment (FDI) brings the best technology and other forms of intellectual capital to countries that would otherwise have to make do without it. FDI benefits the U.S. economy by
(1) Creating new jobs: U.S. affiliates of majority-owned foreign companies employ more than 5 million U.S. workers.
(2) Increasing wages: On the average, U.S. affiliates of foreign companies pay 25% higher wages and salaries than the rest of the private sector.
(3) Increasing exports: Approximately 19% of U.S. exports come from U.S. subsidiaries of foreign companies.
(4) Strengthening manufacturing and services: Some 39% of jobs in U.S. affiliates of foreign companies are in the manufacturing sector.
(5) Bringing in new research, technology, and skills: In 2005, U.S. affiliates of majority-owned foreign companies spent $32 billion on R&D and $121 billion on plant and equipment.
b. FDI brings products that wod ortherwise be unavailable to the countries where the investment occurs, which presumably increases the quality of output and therefore increases the value of world output.
c. International capital flows can transfer savings from countries where the marginal product of capital is low to those where it is high, which again increases world output.
d. The IT revolution has made it very difficult for governments to control cross-border capital movements, even if they have political incentives to do so.
e. IT has allowed for the creation of just-in-time supply chains.
(1) Products can be made “everywhere,” with many products containing inputs from several countries.
(2) These supply chains take the form of complex adaptive systems,which are complex in that they are diverse and made up of multiple interconnected elements (i.e., part of a network) and adaptive in that they have the capacity to change and learn.
(3) Emerging networks and links have formed new opportunities for strategic alliances.
(4) Most countries have some portion of their economy that is market-based.
(5) Labor inflexibility (immobility) has led to a competitive advantage for emerging economies.
(a) This has created a painful outcome for developed-economy workers.
(b) Labor arbitrage was difficult to capture in the past. However, due to urbanization, improved education, significant infrastructure investment, cheaper transportation, and the spread of advanced production technologies and digital standards that allow production to be more readily shifted globally, it is now much easier to shift production to take advantage of low-cost labor. (Global labor arbitrage is the result of removing or lessening barriers to international trade, which will cause jobs to move to nations where labor costs and the cost of doing business due to factors such as labor laws and environmental regulations are least expensive.)
A put / call is an option that gives its owner the right to do which of the following?
PUT: Sell a specific security at fixed conditions of price and time
CALL: Buy a specific security at fixed conditions of price and time
Price Discrimination
Price Discrimination
a. A firm can increase profits if different prices can be charged to different buyers. This would be price discrimination. Price Discrimination is the practice of selling a product or service at different prices to different consumers when those price differences are not justified by cost differences.
b. Price discrimination is possible when:
- the firm is able to have some degree of control over output and price.
- buyers can be segregated into distinct classes that have different abilities (or willingness) to pay for the product or service often based upon different elasticities of demand. Prices are often varied for different age groups. For example, admission to entertainment facilities often varies with age, with children and senior citizens receiving discounts.
- purchasers from the lower-priced market would not have the ability to resell to purchasers from the higher-priced market. Examples would be airline tickets and legal or medical services. Price discrimination is widely used in the airline industry. For example, the business traveler often has an inelastic demand when the need for traveling arises. The vacationer, however, has a more elastic demand and is willing to buy advance purchase tickets to obtain lower fares.
c. The logic of price discrimination is to attempt to segment the market, change the price consumers would be willing to pay, and recapture a portion of the consumer surplus.
Reserve ratio
Reserve ratio = Reserves / Total Demand Deposits
Sovereign Wealth Fund (SWF)
- Sovereign wealth funds (SWFs) are government investments funded by foreign currency reserves but managed separately from official currency reserves and invested for profit. Official reserves traditionally have been held in foreign government securities, e.g., low-risk U.S. government securities.
- The primary sources of funds for sovereign wealth funds are export earnings from commodity (energy)-based exports and the trade surplus generated by the export of manufactured goods. The trade surplus is often tied to the country having a weak currency that causes a country’s goods and services to be priced lower in terms of a foreign currency.
What is a Tariff?
A tax on imported goods
What is a quota?
A limit on the number of goods that can be imported
What is included under the income approach for calculating GDP?
Income approach adds up all income earned in the production of final goods or services
- Such as : wages, interest, rents, dividends, business profit, taxes, depreciation
GDP = NI + indirect business taxes + capital consumption allowance + net foreign factor income
National Income (NI) = Compensation of employees + rental income + interest income + proprietor’s income + corporate profits
What is included under the Expenditure Approach for calculating GDP?
Expenditure Approach adds up all expenditures to purchase final goods or services by household, businesses and government
- = Individual Consumption +Private Investment+ Government Purchases +Net Exports (export-import)
What is Nominal GDP
The price of all goods and services produced by a domestic economy for a year at current market prices.
For what is a GDP Deflator used?
Used to convert GDP to Real GDP
What is Real GDP?
= Nominal GDP / GDP Deflator x 100
GDP adjusted to remove the effect of price inflation in the goods and services
What is Gross National Product (GNP)?
The price of all goods and services produced by labor and property supplied by the nation’s residents.
- US Firms overseas are included
- Foreign firms domestically are not included
How does increased spending by consumers and the government affect the demand curve?
As spending by consumers or the government increases- the demand curve increases (shifts right).
