Merry Christmas From DiscussEconomics

From everyone here at DiscussEconomics we want to wish you a great Christmas. Hopefully your bills won’t get the better of you this season, but hey, if people didn’t spend we’d have nothing to talk about! If you don’t do the Xmas thing then hey, Happy Holidays nonetheless. Keep yourself tuned for the latest news re: the economy and personal finances, in the new year. Winter is slow but we’ll be on top of it.

Exciting changes and additions are planned for next season including an new design so don’t forget to come back soon for a visit and to bookmark us in your browsers and news feeds.

Introduction to Microeconomics Cost Formulas

Let’s carry on from our introduction into microeconomics with a focus now on how firm’s costs vary with output in the short run (6months to 2 years).

Let’s Make an Important Assumption: Prices of inputs are assumed given (ie., firms can’t influence them)

Analyzing Short Run Cost Structure

Family of total costs concepts.

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Microeconmics: The Monopoly

Let’s start our introduction to monopolies by offering a definition: An industry comprising of only one firm. Examples include utility companies (gas, electric, water), rail, and cable companies.

Reasons for monopoly:

(1) No close substitutes
– If substitutes for a good exist, the firm would face competition from the producer of the substitute.

(2) Barriers to entry
– If a single firm is to remain the sole producer, particularly in the long run, there must be some berrier preventing other firms to enter into this industry.

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Microeconomics Cost Formulas

Here is a list of some of basic microeconomics formulas pertaining to revenues and costs of a firm. Remember when you’re using these formulas there are a variety of assumptions, namely, that the the firm is profit-maximizing (making as much money as they can.)

Here are total cost formulas, average variable, marginal cost, and more, (work out your own algebra to find alternatives):

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Dilution and Earnings Per Share: Financial Terms and Explanations

Continuing a discussion on the introductory article on financial terms and explanations, this article discussion common share dilution. Firstly, some background for EPS, let’s use a firm’s Net Income (NI), in this case on a per-share basis. The formula to derive this figure would be: Earnings per share (EPS) = NI / # of common shares. This changes when you consider distribution of Net Income, then the formula is: Net Income = Dividend paid to shareholders + Addition to Retained Earnings. When you consider the stock market: market price / earnings per share = P/E ratio.

Losing Shareholder Value in Share Dilution

EPS = NI / # common shares; EPS diluted < EPS basic; share dilution (loss in existing shareholders' value).

Let’s use an example to show how EPS dilution occurs. A fictitious company called General Ford wants to build a new facility to meet future demand of–vacuums. There is 1 million common shares and no debt currently (haha, you CAN tell it’s fiction). The current market share price = $5 –> market value =$5MM. Book value = $10MM –> $10 per share.

General Ford has experienced difficulties, including cost overruns, regulatory delays, and below normal profits. Market-to-Book ratio = 5/10 = 0.5. (Successful firms rarely have market prices less than book values.)

More info:

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Corner Solution – Perfect Substitutes: Demand Theory

Continuing on with demand theory. Previously we discussed the Cobb Douglas function, now we move into perfect substitutes and the corner solution. Here are some factors to keep in mind.

1. Indifference curves must interest one of the axis (not necessity or essential good)
2. Budget constraint line is such that the slope is greater than the MRS (marginal rate of substitution) (MRS x1, x2) good 2 for good 1 at the intercept (M/p2).

For example: Perfect substitutes: the solution –> spend your entire budget on the cheaper of any two goods to maximize utility. This is mathematically express like:

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Personal Budget Basics for Beginners

DON’T say the B-word. What caused this stigma I have no idea, but one thing is for certain, people who don’t know how to handle their money in the most basic ways know one thing for sure, don’t tell me to ‘budget’.

The fact of the matter is this, the basics of budgeting, simply taking all of your income in and calculating expenses going out to arrive at your (hopefully) positive balance, remain an integral component of basic money management. Whether you’re a youth, or just ready to take control of your own money, understanding where you money goes is crucial.

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Treasury Bills (T-Bills) and Interest Rates Summary

Here is some brief notes on the function and descriptions of these financial instruments.

Treasury Bills (T-Bills)

Government of Canada issues T-Bills in certain lengths: 98,182, 364 days
– issued in denominations of $1000.00
– bought at a discount
– pay no regular interest (no coupons)

*When T-bills go up, interest goes down*

Some Keys on Interest Rates

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How to Check Your Credit Report for Free in Canada – TransUnion and Equifax

Contact Information and Credit Report Forms

Did you know you can check your credit report for free? You can get instant copies online by paying a fee. However, a government mandate on privacy means you can check your credit score for free, you just have to jump through some hoops and send in some documents. It’s not easy to find all the necessary information so we’ve compiled the forms, instructions, and lists here at DiscussEconomics for your review.

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You Don’t Need to be Rich to Invest

Some say, “all but the most sophisticated people will spend a life time paying off their debt.”

Is that true? If so why? Is debt a fact of financial life? Can only the rich afford to invest?

The word ‘sophisticated’ does NOT mean rich or well off. For example, does debt include mortgage payments? Technically it does, but the more worrisome part of most people’s debt load is the debt on depreciating liabilities or non tangibles. Want two examples? Depreciating liability: car. Non tangible: Putting a weekend away or a meal out on your credit card and still paying for it a year later.

Tips for Personal Budgeting

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