Week 8
What is a repugnant transaction
a transaction that some people would likely engage in but other people think they should not
What is a positive vs a negative externality? What are examples of each?
A positive externality has a positive impact on a third party (society). A negative externality has a negative impact on a third party (society)
What is Utalitarianism?
ethical actions to maximize aggregate happiness for most # of people
What is the difference between a Income Statement and a Balance Sheet
Income statement - over time (a 1/4, a yr)
Balance sheet - "snapshot" of any time
Total Value Created
WTP (buyer) - Cost (firm/supplier)
What are the different types of markets? What does each of them do?
1. factor markets
2. product markets
3. matching markets
4. platform markets
What is invention vs innovation?
Innovation is an invention brought into the market (commercialized)
What is temporary advantage
doing something with a firm for short-term, quick profits (Ex: a sale on Coca-Cola)
Indirect blindness vs motivated blindness?
Why do we common size financial statements like Income Statements or Balance sheets?
To compare different firms of different sizes in the same industry
What is arbitrage?
purchase and sale of an asset in different markets to profit from a temporary difference in price
What are Porter's 5 Forces
1. Threat of new entrants 2. Supplier Power 3. Buyer Power 4. Threat of Substitutes 5. Competitive Rivalry
What does perfect competition look like?
many buyers/sellers (ideal) with firms as "price takers"
What does imperfect competition look like?
few sellers with many buyers (large corporations, monopolies) and possible barriers to entry (real world) with firms as price setters
What is the main solution to the P-A problem?
the 2nd best option
What is the P-A problem? Who is the P? Who is the A? What are the characteristics of the problem?
when investors and managers do not have the same incentives
P: principal (investors); give money
A: agent (managers); take money
Characteristics: info asymmetry, different incentives
Pareto Efficient
the point of maximum value creation for all parties
SWOT Analysis letters (what are they? What do they mean? Basic examples?)
S = Strengths (int. +) = customer loyalty
W = Weaknesses (Int. -) = bad reputation from ppl.
O = Opportunities (Ext. +) = new tech, market
T = Threats (Ext. - ) = new competitors, bad laws
What is the difference between Debt and Equity Investors
Debt investors lend money to the company and have no ownership, they get paid first and on a regular timely basis with interest. They have lower risk.
Equity investors give money to the company and receive ownership, they get paid last and are only paid if the company does well. They have a higher risk.
What are the different market failures?
1. externalities (positive and negative)
2. Incomplete information
3. Transaction Costs
Who is famous for making Deontology?
What are the different ethical frameworks?
1. Deontology
2. Utilitarianism
3. Libertarianism
4. Virtue Ethics
5. Social Contract/Social Justice Theory
What are the models of stakeholder capitalism?
1. Instrumental: stakeholder engagement to improve financial performance
2. Classic: balances stakeholder interests for long-term value
3. Beneficial: prioritizes societal benefits alongside profit
4. Structural: reshapes governance to prioritize stakeholders
What is the maximum # of people that can be a part of a S-Corporation?
100 or fewer people
What is national wealth according to capitalism?
capacity to produce goods and services people want