#economics #emba #exam

Opportunity Cost

Highest Valued Option Forgone

Explicit Cost

• out-of-pocket cost
• payment in taking the action
• e.g. money, trade items

Implicit Cost

• opportunity cost
• not an actual payment
• e.g. time cost
  • Highest Valued Alternative Use of Time

Sunk / Historical Cost

• Wasted time should not be considered

Demand & Supply

Individual Demand

• shows the amount of a good a buyer is willing and able to buy at all given prices over a period of time, ceteris paribus.

Law of Demand

• When the price of a good rises/drops, the quantity demanded drops/rises, ceteris paribus.
• Price and Quantity Demanded are negatively related. According to the la of demand, the demand curve should be downward sloping.

Equilibrium

Quantity Demanded = Quantity Supplied

Change in Demand & Supply

Price of Substitute

Competitive Demand
Price of MTR increases, Demand for bus services increase

Price of complement

Joint Demand
Price of cars decreases, Demand for Gasoline increases

Income increases

Demand for Superior Goods increase
Demand for inferior/normal goods decrease

Specialization / Division of labour

In production, people are usually responsible for 1 task / good only

Simple Division of Labour

• A worker specialises in producing a particular type of goods or providing a particular type of services
• Different people produce different goods/services
• e.g. doctor, engineer, domestic helper: all not related

Complex Division on Labour

• A worker specialises in one stage of a production process
• A production is divided into different stages of production of the same good

Regional Division of Labour

• A country or a region specialises in producing a particular type of goods or providing a particular type of services
• Different countries / regions produce different goods / services

Why division of labour?

• Raise labour productivity
  More output can be produced with the same amount of labour
• Raise labour productivity
• Practice makes perfect
• Save time in training and job rotation
• Manager can choose the most suitable person for the job
• Workers to what they can do best
• Save resources from producing capital tools

Disadvantages of specialization

Workers: bored

1. Repeat the job every day
2. Feel bored
3. Lose working interest
4. Productivity drops

Production stages are interdependent

• One stops, whole production process will be affected

Workers face higher risk of unemployment

• Workers learn 1 skill only
• Difficult for them to change jobs

Consumer have fewer choices

• Machines are usually used
• Products are standardized

Limitations of Specialization

• Difficult / unnecessary to practice specialization if
  1. the firm is too small
     Too few workers
  2. the market is too small
     Small output is enough to satisfy the market demand

Fixed Costs

• Costs do not change with output level
• E.g. rent

Variable Costs

• Costs change with output level
• e.g. Gas, Electricity, Water

Internal Economies of scale

Financial Economies

• Lower interest rate due to goodwill

Purchasing Economies

• Discounts due to buying in bulk

Marketing Economies

• Advertising Cost nearly the same even with more output
• Average Cost drops