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

spartanag07

@yohji
3. yes eco cost are higher(as both options give it) but then for small firms or large ones, and why?
7. your right, thanks.

@jay
6. the answer was true.
1,2. yes...my questions were incorrect. thanks.

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.

ramdabom

correction: i meant the SAS slopes down and to the left in the above comment....

JPSem

some other guy:

schweser must be wrong then....the supply curve never slopes down and to the right. The supply curve always slopes down and to the the left; in the case of the AS-AD model the LAS is vertical and the SAS slopes down and to the right. In a decreasing cost industry, the average total costs may slope down and to the right....

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.

Bluetick1010

5) Both pages are referring to different points. Highlight the "short run variables" versus "shift in the short run" phrases. As I alluded to labor in my answer for question 4 above, you can hire and fire consultants as per your production needs "on a short run".

Imagine the "tele-conferencing" technology allowing executives to conduct interactive business meetings. Paying for a $150 a month high-speed broadband connection will cut down on air travel costs of lets say $1,500 a month. Thus radical technologies help shift the cost curves down.

Hope this helps.

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

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.