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):
**Re-posted after the events of the credit crunch and 700 bailout packages, enjoy the read and learn how the banks got themselves in this mess.**
Here’s the story. Banks keep on lending money, but where do they get it from? Do they borrow from bigger banks who borrow from bigger banks who borrow from the central bank who then prints the money? Is it as simple as just printing more money?
Turns out money creation sometimes appears out of thin air. All banks lend based on a reserve ratio of their deposit: they must keep a certain % of each deposit at the bank but can lend out the rest. Of course, the whole system is dependent on a) the bank being responsible with lending, b) everyone not defaulting on their loans. If these two things happen eventually the system faces massive losses which is what we’re seeing in the current market.
Let’s observe a fictitious situation to help us understand how the bank gets or ‘creates’ their money. Note: when the term ‘bank’ is used in this article it will refer to your bank and not the central bank (Federal Reserve for the US.)
October data for new US housing starts and purchases has come out and the results are a mixed bag. In reality, it’s not unexpected. There are far too many problems than improvements with the current American economy. Although the upside of the nation as a whole is high, they are frankly stuck. The people who can make a difference are lawmakers and they perhaps the source to the stagnant economy. With Barak Obama retaining reigns of the White House, it could translate into another stalled Congress for another 4 years as cranky Republicans roadblock economic decisions (and others for that matter) at every turn.
The reflection into crucial areas of the economy is evident. There is marginal gains but generally what we observe is one step forward and one step back for little to no net gain. October data for US housing starts was just that, one step forward, one step back.
If the US tried to sign a secret deal with the Chinese the common citizen would go ballistic. In Canada, a secret agreement signed (we assume on board a moving train in Siberia) in RUSSIA with the Chinese that the current government full intends NOT to debate in Parliament. Weird hey. And Canadians are largely silent. A bit of media coverage here and there but of all the developed nations of the world it’s Canada that seems the most apathetic/disenfranchised/aloof about their politics.
Considering just under 4 out of every 10 Canadians voted for the current majority government you’d think more people would be up in arms.
The Bank of Canada has softened their stance on future overnight lending rates after their announcement to leave the current short term lending rate steady at 1%. Citing concerns over global economic uncertainty, and also growing unrest in Canadian personal debt levels, any future changes have been put on the back burners. The Bank was adamant a future rate hike was not on the radar.
Why are pelicans always short of cash? – Because they have big bills. Where do birds invest? – The stork market.
Diversification – Choosing the right mutual fund
Diversification includes investment across geographic regions, industries eg. communication and entertainment, or sectors of the economy. For example, you may have heard the term small cap funds. Small cap companies are companies with capitalization of under $1 billion.
What are some possible future economic trends? Here are two worth watching
More and more citizens in every society are understanding that planet earth is indeed a small place, where corporate and government action or inaction have global effects. Citizens can vote with their dollars or join programs that promote social responsibility. Environmental, social, and governance (ESG) standards and research are at the forefront of socially responsible investing.
So what does ESG look like in real life? Although the 3 categories overlap and they are interrelated let‘s look at an example we can all relate to.
Heading reluctantly into autumn let’s reflect on this past summer’s more noteworthy happenings. Earlier this year one family I advise went to the bank and turned down the tempting offer of a lower monthly payment when they consolidated their debt.
They knew better. Resisting the bank’s overtures, they realized they would be further ahead in the long run by choosing a higher monthly payment, concentrating on prepayments thus saving on interest costs, which incidentally is the bank’s main source of profit. Their actions demonstrate one of the greatest rewards of my financial planning practice: when clients learn from me and apply their new knowledge with other financial service providers.
Surprising to some, the US unemployment rate fell to 7.8%, dropping below 8% in nearly four years. That bodes well for the OBama campaign. It shouldn’t come as a surprise that unemployment would decline a month before a Presidential election. The US added 114,000 jobs last month and created 86,000 more jobs in July and August than first estimated.
Canada on the other hand added about half as many jobs (a great number given the country is a 10th of the size as the US), however, the unemployment rate increased to 7.4% as more entrants into the workplace outweighed the number of new job adds. Hot markets like Calgary in fact saw an uptick in unemployment.
Here are some thoughts on presumption of self-control theories. They are based on the presumption that we have bounded willpower and that there needs to be a course of action to which keeps in the individual on track to meeting goals and expectations. Thus they derive incentive and constraints as solutions. Constrains, or rules, are meant to restrict the individual’s opportunities.
Do you have any thoughts on self-control theories and relation to behavioral or other forms of economics/choice making?