G202 Exam 1: Topic 3 Flashcards
Explicit costs
When monetary payment is made
Implicit costs
Involve the firm’s resources, but do not have a monetary payment (opportunity costs of investment)
Economic Profit
Economic Profit = Revenues - Explicit costs - Implicit costs
Normal rate of return
What firms could get by investing in businesses with similar risk
What indicates a company is being outperformed by the market?
If Accounting Profit < Normal Rate of Return
Entrepreneur
Someone who tries to exploit opportunities that exist within markets
Intrepreneur:
An entrepreneurial individual that is employed by a firm
Economic freedom
Highest with low taxes, low regulation, secure property, and consistent legal structure
Creative destruction
When entrepreneurial change makes older industries or technologies become obsolete
Conflict of Interest
When a professional individual has a private interest sufficient enough to influence the pursuit of their official duties
Key elements of a conflict of interests
- Professional
- Private or Personal interest
- Official duty
Self- dealing
Using your position to secure personal benefits
Influence peddling
Use your position to secure benefits for a third party
Accepting benefits
Receiving bribes or non-monetary gifts
Misuse of inside information
Misusing confidential information (i.e., insider trading)
Misuse of employer’s property
Personally gaining from employer’s property without consent (i.e., using company credit card to buy more food than you need so you’ll have leftovers)
Outside employment or moonlighting
Holding multiple employment positions at one time, which biases professional behavior (2 income streams at once)
Post-employment Bias
Holding a sequence of employment positions where you carry a bias from one job to the next
Corruption
Abuse of entrusted power for private gain
Petty corruption
Decisions made by low-level bureaucrats (local/regional regulations, licenses, or discretionary spending)
Grand corruption
Decisions made by high-level politicians (national policy formation, infrastructure decisions, military equipment procurement, allocation of subsidies)
FCPA
- Foreign Corruption Practices Act
- An American citizen/resident/corporation/entity registered in the US cannot engage in corruption anywhere in the world
“Sand on wheels of business” perception of corruption
- Reduced GDP growth
- Reduced FDI
- Increased income inequality
- Misallocation of government property
“Oil on wheels of business” perception of corruption
Speeds up commerce in environment controlled by heavy bureaucracy and excessive regulation
