Key Economic Concepts: Labor, Capital, and Productivity
Key Economic Concepts
Added Value
Added value is the difference between the value of goods produced and the cost of raw materials and intermediate goods used to produce them.
The Demand for Labor
The demand for labor is dependent on the demand for goods and services. For example, if the demand for goods increases, it will require more inputs, and therefore, employers will demand more productive labor. Conversely, when the demand for goods decreases, employers will reduce their demand for productive
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Cost-Volume-Benefit (CVB) Analysis
- When modifying the product mix in a multi-product scenario: the magnitudes of the analysis do not vary, but the volumes, prices, and costs do.
- The break-even point provides a perspective to understand the operational situation of the company.
- The benefit/volume ratio (B/V): indicates the benefit needed to cover the amount of sales for the safety margin.
- The composition of sales can define the average product composition in a multi-product CVB analysis. This sales analysis
Key Economic Concepts and Theories
Institutions: Social arrangements created to satisfy the needs of the people in the long run. Adam Smith studied different institutions over time: language, morals, justice, property rights, the division of labor, money, and the market. According to Smith, the institutions most appropriate to a period of commercial interdependence would provide for the governing authority to pursue a laissez-faire (let alone) policy in relation to the economy.
Economics: The social science that studies the production,
Read MoreSupply and Demand: Impact on Market Equilibrium
Factors Shifting the Demand Curve
Shifts in the Demand Curve: When a determinant of demand, other than price, changes, the demand curve shifts. For example, imagine a scientific study reveals that eating ice cream leads to better health and longer life. How would this impact the ice cream market? This new information would change consumer tastes, thus increasing the demand for ice cream.
In conclusion: Any change that increases the quantity demanded at a given price shifts the demand curve to the
Read MoreUnderstanding Macroeconomics: Key Concepts & Policies
Interest Rates
When companies or individuals request a loan, it’s returned with an additional percentage of the original amount. This percentage is called interest, representing the cost of financing. Interest rates are set freely in the market. A high interest rate typically leads to a decrease in investment, as companies will be less inclined to borrow, and fewer loans and projects will be undertaken.
Income Distribution
Income distribution is not perfectly equal; not everyone receives the same wages
Read MoreEnterprise Size and Growth Strategies: A Comprehensive Analysis
Enterprise Size and Growth Strategies
1. Enterprise Dimensions
When discussing enterprise dimensions, we refer to the size of its facilities, a static concept. However, a company’s growth is a dynamic concept. From the company’s perspective, it must consider having an optimum size, which should depend on the overall equilibrium of all costs.
Criteria for Determining Size:
- Number of employees
- Net asset turnover
- Value-added resources
The most commonly used criterion classifies companies as:
- Small (less than