Simple Questions on Economics especially, led, accounting, tend, currently

Foufou

Hi, I am new to finance, and have a few simple questions. Explanations and examples are welcome.(I am currently reading the CFA books provided)

These relate to Economics Study Session 1,2:

1.How exactly does an externality lead to underproduction?

2.How do public goods, common resources led to overproduction?

3.Compared to accounting costs, economic costs tend to be (a) higher, especially for large firms organized as corporations (b) higher, especially for small firms organized as proprietorship.

4.The greater the elasticity of demand for the good, the larger is the elasticity of demand for the labor use to produce it. (explain please)

5.On page 133, it is said that short run variables to output and costs are usually labor while long run variables are related plant. Later on, on page 143 it is given that shifts in the short run cost curves is due to technology. How is this possible, as technology most definitely relates to long run production function? How can technology be a factor for short run cost curves?

6. The long run supply curve for decreasing cost industries slopes downward to the right. True or False. (from Schweser questions)

7. A firm is likely to continue production in the short run as long as price is atleast equal to :
(a) marginal cost (b) average total cost (c) average variable cost. (my ans was a, but schweser says c )

8."Real gross domestic product is the value of the total production of the country’s farms, factories, shops and offices, measured in the prices of a single year." " When all the economy’s labour, capital, land and entrepreneurial ability are fully employed, the value of production is called potential GDP. " If this is so, then how can real GDP ever be greater than potential GDP? And how can they fluctuate around each other (as is given all over the text)?

Thanks for reading. Please go ahead and answer any part you like. It will be great help to me. Thanks again.

johnnyBuz

Likewise. Thank you Jay5150 and someotherguy for this thread.

kamara5

wow. thanks for all the posts. i am not getting time right now, but will definitely check them out in a couple of days. btw, you guys should join the skype group we just formed. its great, coz people are making progress. look in the hookups page.

rgonzalez

hvb4096:

First of all, shifts are generally a concept of the long-run, while movements are generally concepts of the short-run.

Now, the website that you referenced above, explains and graphically depicts exactly what I am saying. The short-run supply curve shifts to the right (but is still upward sloping to the right) and the long-run supply curve is a horizontal line (perfectly elastic).

I think you may have the long-run average cost curve and the long-run supply curve confused. But, at NO point, does the supply curve slope down and to the right (not the short-run nor the long-run).

lc26mizzou

hvb4096:

correction, the LRS for the industry can slope becuase price will naturally be lower in the long-run since cost will be lower (competition will drive down price).

Understood now.

cchang

I would like to reassert for "someotherguy" to pick up college level Economics books for a couple of weeks before delving into CFAI Economics book. The CFAI requires that a candidate has basic knowledge of Economics. The carriculum does not simplify or comprehend rudimentory and subtle concepts like the difference beetween short and long run.
Another suggestion is to try finishing the Quant, Financial Reporting and Corporate Finance readings before starting Economics. The details of these readings as a backdrop will help you understand Economics faster. I would also suggest that you pick up a GMAT/GRE book for two days and refresh your math. The Economics calculations will require you to be quick on your feet with Geometry/slopes/algebra etc.

dontknow1987

Don't forget to click on the "Long Run Supply Curve" button to get your answer on the "Decreasing Cost" chart.

ftwcfa

Yes, competition will cause suppliers to supply more for a given price, however, the relationship between Price and Quantity using the AS-AD model still hold; with the supply curve upward sloping to the right and the demand curve downward sloping to the right.... The furthest you can get the supply curve to downward sloping is horizontal (perfectly elastic demand)

agulani

So you are saying that the lower the price the more the Quantity supplied??? Doesnt make any sense. DO NOT rely on Schweser! You will get royaly screwed! The exam is based off of the CFA Curriculum readings!

If there is not a market for a $10/unit supplier, firms will leave the market. The aggregate supply will drop, but the supply of each firm will increase. When firms enter and exit the market, this does not change the slope of the curve. It will cause a SHIFT in the curve.

Sorry, but you have NO CLUE

marsilni

sorry- the last three sentences in my post were consusing. Please correct as follows:

" ... hence the product price has a "strong" correlation with the elasticity of demand for LABOR. Price increase means lower demand that implies firing LABOR force. The reverse is also true for this question."

You should spend a few minutes to grasp the concept of "elasticity". Economics has borrowed the concept from physics.