Economics Flashcards
When the income increases, this property of a product defines if the allotment of budget for this product decreases or increases
Income Elasticity
When Income Elasticity is Greater than 1:
As Income increases, the percentage of the income allotted for purchasing this product ______
Increases
When Income Elasticity is Less than 1:
As Income increases, the percentage of the income allotted for purchasing this product ______
Decreases
A Necessity Product has an Income Elasticity of _____
I.E. < 1
A Luxury Product has an Income Elasticity of _____
I.E. > 1
Define the Sellers and Buyers for this market situation:
Perfect Competition
Sellers: Many
Buyers: Many
Define the Sellers and Buyers for this market situation:
Monopoly
Sellers: One
Buyers: Many
Define the Sellers and Buyers for this market situation:
Monopsony
Sellers: Many
Buyers: One
Define the Sellers and Buyers for this market situation:
Bilateral Monopoly
Sellers: One
Buyers: One
Define the Sellers and Buyers for this market situation:
Duopoly
Sellers: Two
Buyers: Many
Define the Sellers and Buyers for this market situation:
Duopsony
Sellers: Many
Buyers: Two
Define the Sellers and Buyers for this market situation:
Oligopoly
Sellers: Few
Buyers: Many
Define the Sellers and Buyers for this market situation:
Oligopsony
Sellers: Many
Buyers: Few
Define the Sellers and Buyers for this market situation:
Bilateral Oligopoly
Sellers: Few
Buyers: Few
A market situation wherein only one entity is assigned to produce a certain product/ provide a service to minimize the cost of the whole economy
Natural Monopoly
The Supply ______ when the number of units increases
Increases :v
The Demand ______ when the number of units increases
Decreases
The Supply ______ when the Price increases
Increases
The Demand ______ when the Price increases
Decreases
Define the Law of Supply and Demand
Under Perfect Competition, The Price of the Product is going to be the price where the supply and demand are equal
Define The Law of Diminishing Returns
Adding resources (ex. more employees) is only effective up to a certain point, the benefit of adding resources diminishes as you keep on adding that specific resource
“The Gain is not worth the Pain”
Interest that grows linearly; interest only bases its growth on initial principal/investment
Simple Interest
Formula for Simple Interest
I = P i n
P - Initial value/Principal
i - Interest Rate
n - Period of interest Rate
Formula for Future Cost of Simple Interest
F = I + P F = P(1 + (i n))
I - Interest
P - Initial/Present/Principal Value
i - Interest Rate
n - Period of interest Rate
Type of Simple Interest that assumes 30 days in one month
Ordinary Simple Interest
Formula for the period(n) of Ordinary Simple Interest
n = (#days elapsed) / 360
Type of Simple Interest that accounts for the exact number of days in a month, including leap years
Exact Simple Interest
Formula for the period(n) of Exact Simple Interest
n = (#days elapsed) / (365 OR 366(leap year))
How to determine if a year is a leap year?
If the year is divisible by 4, it is a leap year
How to determine if a year is a century year?
if a year ends with two zeroes (example, 1600, 1700, 2000), if it is divisible by 4, it is a century year, which is counted as a leap year
How to determine exact number of days in a year?
Use knuckles(31 for knuckle, 30 for crevice between knuckles):
Jan -31 Feb -28(exception to 31-30 rule) or 29(if leap year) Mar-31 Apr-30 May-31 Jun-30 July-31 Aug-31(start @ a knuckle for Aug) Sept-30 Oct-31 Nov-30 Dec-31
Interest that grows exponentially; Interest from previous period is also subjected to the Interest Rate when compounded in the next period
Compound Interest
Formula for Future Value in Compound Interest
F = P(1 + i)^n
P - present value
i - interest rate
n - Period of Interest Rate
Compound interest that compounds at every single instant of time (number of periods is infinite)
Continuous compound interest
Formula for Future Value in Continuously Compounded Interest
F = P e^(NR . N)
P - Present Worth
e - natural logarithm number
NR - Nominal Rate (annual, to match ‘N’)
N - Number of years
An Interest rate distributed throughout the whole year by ‘m’ portions
Nominal rate
If a nominal rate ‘NR’ is given, and is compounded ‘m’ times in a year, how do you interpret the growth of interest?
in one year, there are ‘n’ simple interests, with an interest rate of (NR/m), where every period applies the interest rate on the cumulative value of the account, including previous interests obtained
Formula for Future worth of Compound Interest using Nominal Rates
F = P ( 1+ (NR/m) )^m
P - Present Worth
NR - Nominal Rate
m - # period divisions in a year
A rate that is observed in a yearly basis, As if the present worth is subjected to a simple interest rate from initial to final value
Effective rate
Formula for Effective Rate
ER = [ ( 1 + (NR / m) )^m ] - 1
P - Present Worth
NR - Nominal Rate
m - # period divisions in a year
when ‘m’ is not equal to 1,
Effective rate is ______ Nominal Rate
Greater than
when ‘m’ is equal to 1,
Effective rate is ______ Nominal Rate
Equal to
A uniform series of payments that occur at equal intervals of time
Annuity
An annuity where payments are made after each period
Ordinary Annuity
An annuity where payments are made before each period
Annuity Due
An annuity where the Series of payments are paid some time after the transaction is made
Deferred annuity
An annuity with an infinite number of uniform payments
Perpetuity
Formula for Present Worth of a Perpetuity
P = A / i
A - annuity
i - Interest Rate
Formula for the sum of annuity (AKA Future Worth of annuities)
S = A [ (1 +i)^n - 1 ] / i
A - annuity
i - Interest Rate
n - # of periods
NOTE: ‘i’ must match ‘n’ periods
Formula for the Present Worth of Annuity
P = S / [(1+i)^n] P = A [ (1 +i)^n - 1 ] / [ i ( 1 + i ) ^ n ]
S - Sum of annuities (Future Worth)
A - annuity
i - Interest Rate
n - # of periods
NOTE: ‘i’ must match ‘n’ periods
If ‘i’ does not match ‘n’, How do you convert into an ‘i’ that matches ‘n’?
Shift Solve for ‘i(new)’:
[(1 + NR/m(old))^m(old) ] - 1 = [(1 + i(new)/n(new) )]^n(new) - 1
NR - Nominal Rate
m(old) - Period that does not match the number of annuities/interest rate
i(new) - new ‘i’ to use in annuity formulas
n(new) - new period that matches number of annuities/interest rate
An annuity still with equally spaced time intervals, but with non-uniform payments, where payments increases/decreases in every period, following a certain trend
Gradient
A gradient wherein the annuities’ value increases in a linear manner
Arithmetic Gradient
A gradient wherein the annuities’ value increases in an exponential manner
Geometric Gradient
Formula Present Worth of Gradient
Format of summation:
∑(Function , Lower Limit , Upper Limit)
P = ∑( F(n) / [ (1+i)^n ] , 1 , Period end)
F(n) - Future worth as a function of ‘n’, since annuity changes for every iteration (Form equation for F(n) at your own discretion)
A Depreciation Model that follows a linear manner of depreciation as time progresses
Straight Line Method
CALTECH: Straight Line Method
Use Stat mode A + Bx
and plot
( 0 , First Cost),
and then plot
( (period at salvage value), Salvage Value)
and use Ybar for obtaining book value at a specific period
A Depreciation Model that depreciates at a constant Percentage annually
Declining Balance Method
Another term for Declining Balance Method
Matheson Formula
CALTECH: Declining Balance Method
Remember: Constant depreciation percentage (%d)
Use Stat mode AB^x
Simply Plot points given
@ period 0, First cost
@ period 1, (First Cost x (1-%d))
And use Xbar Ybar depending on what is asked for
A Depreciation Model that depreciates uniformly, like how an annuity uniformly increases ¯_(ツ)_/¯
Sinking Fund Method
Formula for Sinking Fund Method
Use Stat mode AB^x 1st item will start with (period 0 , 1) 2nd item: (period 1 , [1 + (NR/m)]) In stat mode, use 'B' in Shift Stat Regression menu for:
(First Cost - Salvage Value) =
d ∑( [B ^(x-1)] , 1 , final period)
∑ is a STAT Mode function
d - annual Depreciation Cost(not percentage)
CALTECH: Double Declining Balance Method
Use Stat mode AB^x
points given :
@ period 0, First cost;
@ period 1, (First Cost x (1 - {2/(Salvage year}))
And use Xbar Ybar depending on what is asked for
A Depreciation Model which is an accelerated method for calculating an asset’s depreciation. This method takes the asset’s expected life and adds together the digits for each year
Sum of Year’s Digit Method
CALTECH: Sum of Years Digit Method
Use Stat mode A+Bx+Cx^2 (Must have 3 plot points)
points given :
@ period 0, First cost;
@ period ‘L’, (Salvage Value)
@ Period ‘L +1’, (Salvage Value)
And use Xbar Ybar depending on what is asked for
The Rate attributed to the depreciation of money value
Inflation Rate
Formula for Future worth, including inflation rate
F = P (1 + i)^n x 1 / (1+f)^n
f - Inflation rate
Formula for Discount
d = 1 - (1 / (1+i)) i = d / (1-d)
d - rate of discount
CALTECH: Nominal to effective rate
Use Stat mode AB^x
X column represents the periods in compounding (quarterly, etc)
Y represents the grown value of money (starts af 1)
1st item will start with
(period 0 , 1)
2nd item:
(period 1 , [1 + (NR/m)])
And use (n Ybar) to find the effective rate after n periods
CALTECH: Ordinary Annuity
Use Stat mode AB^x
1st item will start with
(period 0 , 1)
2nd item:
(period 1 , [1 + (NR/m)])
Obtain ‘B’ in Shift Stat Regression,
Then, type in calculator as is:
∑([B^(-x)] , A1 , Af)
A1 -annuity period at first pay
Af - annuity period at final pay
Store as any value (lets say, at ‘M’)
Finally, use in formula
P = A x M
P-Present Value
A-Annuity
M-Value of summation previously performed
CALTECH: Annuity Due
Same as Ordinary annuity, but use
∑([B^(-x)] , (A1 - 1) , (Af - 1))
CALTECH: Future worth of Annuity
Following up on CALTECH of Annuity:
F(@period n) = P(n(Ybar))
OR
F(@period n) = ∑([B^(x-1)] , A1 , Af)
CALTECH: Present Value of Arithmetic Gradient
Use Stat mode AB^x
1st item will start with
(period 0 , 1)
2nd item:
(period 1 , [1 + (NR/m)])
Obtain ‘B’ in Shift Stat Regression,
Then, type in calculator as is:
P = ∑([A + G(x-1)]B^(-x) , 1 , period end)
G - Change in Annuity/Cash Flow
A - 1st annuity
CALTECH: Present Value of Geometric Gradient
Use Stat mode AB^x
1st item will start with
(period 0 , 1)
2nd item:
(period 1 , [1 + (NR/m)])
Obtain ‘B’ in Shift Stat Regression,
Then, type in calculator as is:
P = ∑([A(1 + g)^(x - 1)]B^(-x) , 1 , period end)
g - Change in %annuity/Cash FLow
A - 1st payment
