Supply and Demand

Law of demand—price up, quantity down (substitution and income effects). Demand shifts—income, preferences, prices of related goods (substitutes/complements), expectations, number of buyers. Law of supply—price up, quantity up. Supply shifts—input prices, technology, expectations, number of sellers. Equilibrium where supply equals demand. Surplus (excess supply) pushes price down; shortage (excess demand) pushes price up.

Elasticity

Price elasticity of demand = %ΔQ / %ΔP. Elastic (>1) vs inelastic (<1). Determinants: substitutes availability, necessity vs luxury, time horizon. Perfectly inelastic (0) essential goods; perfectly elastic (∞) perfect competition. Income elasticity—normal (>0), inferior (<0). Cross-price elasticity—substitutes (>0), complements (<0).

Consumer Behavior

Utility—satisfaction from consumption. Marginal utility—additional satisfaction from one more unit. Law of diminishing marginal utility—each additional unit yields less satisfaction. Consumer equilibrium—allocate budget to maximize total utility, where marginal utility per dollar equal across goods. Indifference curves—combinations giving same utility. Budget constraint—what consumer can afford. Optimal consumption where indifference curve tangent to budget line.

Production and Costs

Production function—output from inputs. Short run—at least one fixed input. Law of diminishing returns—adding variable input to fixed input eventually yields smaller output increases. Long run—all inputs variable. Returns to scale—increasing, constant, decreasing. Costs—fixed (unrelated to output), variable (related). Total, average, marginal cost. Economies of scale—average cost falls as output increases (specialization, bulk purchasing). Diseconomies of scale—average cost rises (coordination problems).

Market Structures

Perfect competition—many firms, identical products, free entry/exit, price takers. Firms produce where P = MC. Zero economic profit long run. Monopoly—single seller, barriers to entry, price maker. Produces where MR = MC, charges P > MC, earns economic profit. Price discrimination—different prices to different customers (airlines, movie theaters).

Monopolistic competition—many firms, differentiated products, free entry. Downward sloping demand, zero profit long run (excess capacity). Oligopoly—few firms, strategic interaction. Game theory—prisoner’s dilemma, Nash equilibrium, collusion, cartels (OPEC).

Market Failure and Government

Externalities—costs/benefits affecting third parties (pollution negative, education positive). Government solutions—taxes, subsidies, regulation, tradable permits. Public goods—non-excludable, non-rival (national defense, lighthouses). Free rider problem. Information asymmetry—adverse selection (lemons market), moral hazard (insurance). Government intervention aims to improve efficiency.

Measuring Economic Activity

GDP—market value of all final goods/services produced within country in given period. Expenditure approach: Y = C + I + G + NX (Consumption + Investment + Government + Net Exports). Income approach: wages + rents + interest + profits. Value-added approach. Nominal GDP (current prices) vs real GDP (constant prices). GDP per capita approximates living standards. Limitations—excludes non-market transactions (household work), underground economy, negative externalities, leisure, inequality.

Inflation

CPI (Consumer Price Index)—basket of typical goods. Inflation rate—% change in CPI. PPI (Producer Price Index)—wholesale prices. GDP deflator—ratio nominal/real GDP. Causes: demand-pull (too much spending), cost-push (higher production costs). Effects: erodes purchasing power, redistributes income (borrowers gain, lenders lose), shoe-leather costs, menu costs, tax distortions. Hyperinflation (Zimbabwe, Weimar Germany) destroys economies.

Unemployment

Labor force—employed + unemployed actively seeking. Unemployment rate = unemployed / labor force. Types: frictional (between jobs), structural (mismatch skills/jobs), cyclical (due to recession). Natural rate = frictional + structural (~4-5%). Full employment doesn’t mean zero unemployment. Okun’s law—1% extra unemployment reduces GDP by 2%.

Aggregate Demand and Supply

AD curve—total spending at different price levels. Downward sloping due to wealth effect, interest rate effect, exchange rate effect. Shifts from C, I, G, NX changes. AS curve—total output at different price levels. Short run upward sloping (sticky wages/prices). Long run vertical at potential GDP. Shifts from technology, input prices, expectations.

Fiscal Policy

Government spending and taxes to influence economy. Expansionary (increase G, decrease T) during recession—stimulates AD. Contractionary (decrease G, increase T) during inflation—cools economy. Multiplier effect—initial spending generates further spending. Crowding out—government borrowing raises interest rates, reduces private investment. Automatic stabilizers—unemployment benefits, progressive taxes dampen cycles.

Monetary Policy

Central bank (Federal Reserve) controls money supply, interest rates. Tools: open market operations (buy/sell bonds), discount rate (loans to banks), reserve requirements. Expansionary—lower interest rates, increase money supply. Contractionary—raise rates, decrease supply. Goals: price stability (low inflation), maximum employment, moderate long-term interest rates. Taylor rule guides interest rate decisions. Inflation targeting common framework.

Theories of Trade

Absolute advantage (Smith)—country more efficient at producing good benefits from specializing. Comparative advantage (Ricardo)—country should produce goods where opportunity cost lower. Both benefit even if one absolute advantage both. Heckscher-Ohlin—countries export goods using abundant factors (capital-rich export capital-intensive). Leontief paradox—US exported labor-intensive goods despite capital abundance. New trade theory—economies of scale, network effects explain intra-industry trade.

Trade Policy

Tariffs—tax on imports, raise revenue, protect domestic industry, but higher prices for consumers, inefficiency. Quotas—quantity limits, similar effects, quota rents. Subsidies—support domestic producers. Non-tariff barriers—regulations, standards. Arguments for protection: infant industry, national security, anti-dumping, jobs, unfair competition. WTO promotes free trade, resolves disputes. Trade blocs—EU (customs union), USMCA (free trade area), ASEAN.

Balance of Payments

Current account—trade in goods/services, income, transfers. Capital account—capital transfers, non-produced assets. Financial account—investment flows (FDI, portfolio). Double-entry bookkeeping—surplus/deficit in one offset in another. Persistent US current account deficit financed by capital inflows (foreign buying US assets).

Exchange Rates

Nominal exchange rate—price of one currency in another. Real exchange rate = nominal × (domestic price / foreign price). Appreciation—currency stronger, imports cheaper, exports more expensive. Depreciation—opposite. Floating rates determined by supply/demand (most major currencies). Fixed rates—pegged to another currency (Hong Kong dollar to USD). Managed float—intervention to influence rate.

International Finance

Mundell-Fleming model—monetary and fiscal policy under capital mobility. Impossible trinity—cannot have all: fixed exchange rate, free capital movement, independent monetary policy. Choose two. Currency crises—sudden depreciation (Asian crisis 1997, Argentine 2001). Optimal currency areas—eurozone theory (Mundell).

Growth Theories

Solow model—output from capital, labor, technology. Steady state—capital per worker constant. Saving increases capital until diminishing returns. Technology drives long-run growth. Endogenous growth (Romer)—knowledge, innovation, human capital generate increasing returns. Institutions matter—property rights, rule of law (Acemoglu). Geography, culture, history also factors.

Poverty and Inequality

Absolute poverty—income below threshold (World Bank $2.15/day). Relative poverty—below society’s median. Inequality measures—Gini coefficient (0 perfect equality, 1 perfect inequality), Lorenz curve. Kuznets curve—inequality rises then falls with development (debated). Poverty traps—low income leads to low saving, investment, growth—vicious cycle. Interventions: education, health, infrastructure, microfinance.

Institutions and Development

Acemoglu, Robinson—institutions key. Extractive institutions (elite benefit) vs inclusive institutions (broad participation). Colonial origins shaped institutions. Good institutions—property rights, contract enforcement, limited government. Corruption undermines development.

Policy Issues

Trade—openness generally helps growth (controversial). Foreign aid—debated effectiveness (Sachs vs Easterly). Debt relief—HIPC initiative. Microfinance—small loans to poor (Grameen Bank). Conditional cash transfers—pay for school attendance, health (Mexico’s Progresa). Sustainable Development Goals (SDGs)—17 UN goals for 2030.

Time Value of Money

Money today worth more than same amount future—can invest earn interest. Future value: FV = PV × (1 + r)^n. Present value: PV = FV / (1 + r)^n. Discount rate reflects opportunity cost, risk. Annuities—series of equal payments. Perpetuities—infinite stream (PV = PMT / r).

Capital Budgeting

Evaluate investment projects. Net Present Value (NPV)—sum of discounted cash flows. Accept if NPV > 0. Internal Rate of Return (IRR)—discount rate making NPV zero. Accept if IRR > cost of capital. Payback period—time to recover initial investment (ignores time value, cash flows after). Profitability index—NPV / initial investment.

Cash flow estimation—incremental, after-tax, exclude sunk costs, include opportunity costs, working capital. Risk analysis—sensitivity analysis, scenario analysis, Monte Carlo simulation.

Cost of Capital

Weighted Average Cost of Capital (WACC) = (E/V) × Re + (D/V) × Rd × (1-Tc). Cost of equity—CAPM: Re = Rf + β × (Rm – Rf). Cost of debt—yield on bonds. Capital structure—mix of debt and equity. Modigliani-Miller—in perfect markets, value independent of capital structure. With taxes, debt provides tax shield (interest deductible). Trade-off theory—balance tax benefits vs bankruptcy costs. Pecking order—prefer internal funds, then debt, then equity.

Dividend Policy

Dividends vs retained earnings. Dividend irrelevance (MM)—in perfect markets. But taxes, signaling matter. Clientele effect—different investors prefer different policies. Stock repurchases alternative to dividends.

Asset Classes

Stocks (equity)—ownership, dividends, capital appreciation. Common vs preferred. Bonds (debt)—fixed income, interest, principal at maturity. Government, corporate, municipal. Derivatives—options (call, put), futures, forwards, swaps. Real assets—real estate, commodities, collectibles. Cash equivalents—T-bills, money market.

Risk and Return

Historical returns—stocks ~9-10%, bonds ~5-6%, T-bills ~3-4%. Risk measured by standard deviation (volatility). Diversification reduces unsystematic (company-specific) risk. Systematic (market) risk cannot be diversified. Capital Asset Pricing Model (CAPM)—expected return = risk-free rate + β × market risk premium. Beta measures sensitivity to market.

Portfolio Theory

Markowitz mean-variance optimization—choose portfolios maximizing return for given risk. Efficient frontier—set of optimal portfolios. Risk-free asset allows capital market line. Modern portfolio theory—diversification benefits depend on correlations. Asset allocation most important determinant of returns.

Market Efficiency

Efficient Market Hypothesis (EMH)—prices reflect all available information. Weak form—past prices no help. Semi-strong—public information reflected. Strong form—all information including private. Anomalies—momentum, value, size effects challenge EMH. Behavioral finance explains anomalies. Active vs passive management—index funds outperform most active managers.

Primary vs Secondary Markets

Primary—new securities issued. IPO (initial public offering), seasoned offerings. Underwriters (investment banks) help issue. Secondary—existing securities traded (NYSE, NASDAQ). Provides liquidity, price discovery.

Stock Markets

NYSE—auction market, specialists. NASDAQ—dealer market, multiple market makers. Electronic trading dominates. Market indices—S&P 500, Dow Jones, NASDAQ Composite. Trading—market orders (execute immediately at best price), limit orders (only at specified price or better). Short selling—borrow shares, sell, hope buy back cheaper.

Bond Markets

Larger than stock markets. Treasury bonds—government debt. Corporate bonds—company debt, credit risk. Municipal bonds—state/local, tax-exempt. Bond pricing—present value of coupons + face. Yield to maturity—total return if held to maturity. Credit ratings—Moody’s, S&P assess default risk.

Derivatives Markets

Options—right to buy (call) or sell (put) at specified price by certain date. Futures—obligation to buy/sell at future date. Used for hedging, speculation. Exchanges—CBOE, CME. OTC derivatives—customized, less regulated (contributed to 2008 crisis).

Regulation

SEC oversees securities markets. Disclosure requirements, insider trading prohibition. Dodd-Frank (2010)—post-crisis reform. Basel III—bank capital requirements. Market manipulation illegal.

Limits to Arbitrage

In theory, arbitrageurs correct mispricing. But in reality, limits: fundamental risk (mispricing may worsen), implementation costs, noise trader risk (sentiment may intensify).

Prospect Theory

Kahneman & Tversky (1979). People value gains and losses differently. Losses hurt more than equivalent gains (loss aversion). Value function concave for gains, convex for losses, steeper for losses. Reference points matter. Probability weighting—overweight small probabilities, underweight large.

Cognitive Biases

Overconfidence—overestimate abilities, precision. Confirmation bias—seek confirming evidence. Availability bias—ease of recall. Representativeness—judge by stereotypes (good companies = good investment). Anchoring—rely on initial information. Framing—decisions affected by presentation. Disposition effect—sell winners too early, hold losers too long. Herding—follow others. Familiarity bias—prefer familiar investments.

Market Anomalies

Momentum—stocks with recent high returns continue outperforming. Value effect—low price-to-book outperform. Size effect—small caps outperform. January effect—stocks rise in January. These challenge EMH, may reflect risk premiums or behavioral mispricing.

What is Strategy?

Strategy—long-term direction, competitive positioning, resource allocation. Operational effectiveness—doing same things better (efficiency, quality) necessary but not sufficient. Strategy—doing different things or same things differently. Sustainable competitive advantage.

External Analysis

PESTEL—Political, Economic, Social, Technological, Environmental, Legal factors. Porter’s Five Forces: threat of new entrants (barriers), bargaining power of suppliers, bargaining power of buyers, threat of substitutes, industry rivalry. Determines industry attractiveness.

Internal Analysis

Resources—tangible (financial, physical), intangible (reputation, knowledge), human (skills, motivation). Capabilities—organizational processes to deploy resources. VRIO framework—resource valuable, rare, costly to imitate, organization exploiting? Core competencies—collective learning, especially coordinating diverse production skills (Prahalad & Hamel).

SWOT Analysis

Strengths, Weaknesses (internal), Opportunities, Threats (external). Simple but powerful framework. TOWS matrix—match internal/external.

Competitive Strategy

Porter’s generic strategies: cost leadership (Walmart, Southwest), differentiation (Apple, Mercedes), focus (narrow segment). Stuck in middle—neither. Value chain—primary activities (inbound logistics, operations, outbound logistics, marketing, service) and support (procurement, technology, HR, infrastructure). Analyze where value created, costs.

Corporate Strategy

Diversification—related (synergies) vs unrelated (conglomerate). BCG matrix—stars (high growth, high share), cash cows (low growth, high share), question marks (high growth, low share), dogs (low growth, low share). Parenting advantage—corporate adds value to businesses. Ansoff matrix—market penetration, market development, product development, diversification.

Blue Ocean Strategy

Kim & Mauborgne—create uncontested market space (blue ocean) rather than competing in crowded (red ocean). Value innovation—pursue differentiation and low cost simultaneously. Cirque du Soleil example.

Individual Behavior

Personality—Big Five (openness, conscientiousness, extraversion, agreeableness, neuroticism). Values—guiding principles. Perception—how interpret reality, attribution theory. Attitudes—cognitive, affective, behavioral components. Job satisfaction, organizational commitment.

Motivation Theories

Content theories: Maslow’s hierarchy (physiological, safety, social, esteem, self-actualization). Herzberg’s two-factor—hygiene factors (prevent dissatisfaction) vs motivators (create satisfaction). Alderfer’s ERG—existence, relatedness, growth. Process theories: Expectancy theory—effort leads to performance leads to rewards valued. Equity theory—compare input/output ratios. Goal-setting theory—specific, challenging goals improve performance.

Leadership

Trait theories—certain qualities (intelligence, charisma). Behavioral—task-oriented vs people-oriented. Contingency theories—Fiedler, path-goal, situational leadership. Transformational—inspire, motivate, intellectual stimulation. Transactional—rewards, punishments. Servant leadership—focus on followers’ needs. Authentic leadership—self-awareness, transparency.

Teams

Stages—forming, storming, norming, performing, adjourning. Team effectiveness—task characteristics, team composition, process. Cohesion, norms, roles. Decision-making—groupthink (conformity), group polarization (more extreme).

Organizational Culture

Shared values, beliefs, assumptions. Artifacts (visible), espoused values, basic assumptions. Strong culture—alignment, performance. Culture types—clan, adhocracy, market, hierarchy. Changing culture difficult.

Power and Politics

Sources of power—legitimate, reward, coercive, expert, referent. Organizational politics—influence for self-interest. Conflict management—competing, collaborating, compromising, avoiding, accommodating.

Process Design

Process—transforming inputs to outputs. Types: job shop (custom), batch (moderate volume), assembly line (high volume), continuous flow (very high). Process mapping—flowcharts, swim lanes. Capacity—maximum output. Bottleneck—slowest step limits capacity. Little’s Law—throughput = work-in-process / cycle time.

Quality Management

Quality—meeting/exceeding customer expectations. Costs of quality—prevention, appraisal, internal failure, external failure. Total Quality Management (TQM)—continuous improvement, employee involvement, customer focus. Six Sigma—reduce defects to 3.4 per million. DMAIC—Define, Measure, Analyze, Improve, Control. Statistical process control—control charts, process capability.

Lean Operations

Eliminate waste (muda)—overproduction, waiting, transport, overprocessing, inventory, motion, defects. Just-in-Time (JIT)—produce only what needed when needed. Kanban—pull system. Kaizen—continuous improvement. 5S—sort, set in order, shine, standardize, sustain.

Supply Chain Management

Flow of goods from suppliers to customers. Upstream (suppliers), internal (operations), downstream (distribution). Bullwhip effect—demand variability amplifies upstream. Inventory—raw materials, WIP, finished goods. EOQ—economic order quantity balances ordering and holding costs. Safety stock buffers uncertainty. Vendor-managed inventory. Sustainability—green supply chains.

Project Management

Projects—temporary, unique. Operations—ongoing, repetitive. Triple constraint—scope, time, cost. WBS—work breakdown structure. Critical path method—longest path determines project duration. PERT—probabilistic time estimates. Agile—iterative, flexible. Scrum—sprints, daily stand-ups, product owner, scrum master.

Entrepreneurial Mindset

Entrepreneurs identify opportunities, take risks, innovate. Opportunity recognition—problems, gaps, trends. Effectuation (Sarasvathy)—start with means, affordable loss, partnerships, leverage contingencies. Creativity—divergent thinking, brainstorming. Passion and perseverance (grit) essential.

Business Models

Business Model Canvas (Osterwalder)—9 building blocks: value proposition, customer segments, channels, customer relationships, revenue streams, key resources, key activities, key partnerships, cost structure. Value proposition—problem solved, need satisfied. Revenue models—transaction, subscription, freemium, advertising, licensing.

Lean Startup

Ries—build-measure-learn loop. Minimum Viable Product (MVP)—simplest version to test assumptions. Validated learning—data-driven iteration. Pivot—change strategy based on learning. Innovation accounting—measure progress. Continuous deployment—frequent releases.

Funding

Bootstrapping—self-fund. Friends and family. Angel investors—wealthy individuals early stage. Venture capital—professional investors, equity, active involvement. Stages—seed, early, growth. Term sheets—valuation, dilution, control. Crowdfunding—Kickstarter, Indiegogo.

Scaling

Growing startup—challenges: culture, hiring, processes, delegation. Greiner’s growth model—crises at each stage. Platform scaling—network effects (Metcalfe’s law). International expansion.

Exit Strategies

IPO—going public, liquidity, prestige. Acquisition—bought by larger company. Merger—combine with another. Management buyout. Succession planning for family businesses.

STP Framework

Segmentation—divide market into distinct groups. Bases: geographic (region, climate), demographic (age, income, gender), psychographic (lifestyle, values), behavioral (usage, loyalty). Effective segments—measurable, accessible, substantial, differentiable, actionable.

Targeting—evaluate segment attractiveness, select segments. Strategies: undifferentiated (mass market), differentiated (multiple segments), concentrated (niche), micromarketing (individuals).

Positioning—define how want target market perceive brand. Positioning statement: “To [target], [brand] is the [category] that [point of difference] because [reason to believe].” Perceptual maps visualize positioning.

Marketing Mix (4Ps)

Product—core benefit, actual product (features, quality, design, branding), augmented product (warranty, service). Product line, product mix. New product development—idea generation, screening, concept testing, business analysis, development, test marketing, launch.

Price—strategies: cost-based, value-based, competition-based. New product pricing—skimming (high initial) vs penetration (low). Price adjustments—discounts, psychological pricing, geographic.

Place—channels: direct (online, own stores), indirect (retailers, wholesalers). Channel intensity—intensive, selective, exclusive. Logistics, distribution.

Promotion—advertising, PR, sales promotion, personal selling, direct marketing. Integrated marketing communications—consistent message across channels.

Decision Process

Five stages: problem recognition (need), information search (internal/external), evaluation of alternatives (consideration set, criteria), purchase decision, post-purchase behavior (satisfaction, dissonance). Involvement affects process—high involvement (extensive), low involvement (limited).

Psychological Factors

Motivation—Maslow’s hierarchy, drive theory. Perception—selective attention, distortion, retention. Learning—classical conditioning, operant conditioning, cognitive learning. Beliefs and attitudes—ABC model (affect, behavior, cognition). Attitude change—persuasion, cognitive dissonance.

Social Factors

Culture—values, norms, customs. Subculture—nationality, religion, ethnicity. Social class—income, education, occupation. Reference groups—family, friends, celebrities influence. Opinion leaders, influencers. Family life cycle stages influence purchases.

Situational Factors

Physical surroundings (store atmosphere), social surroundings (others present), time, purchase occasion, mood.

Customer Loyalty

Behavioral loyalty—repeat purchases. Attitudinal loyalty—emotional attachment. Loyalty programs—rewards, tiers. Switching costs—make changing difficult. Customer lifetime value (CLV) measures long-term worth.

SEO (Search Engine Optimization)

Improve organic visibility. On-page—keywords, content quality, meta tags, URL structure. Off-page—backlinks, authority, social signals. Technical—site speed, mobile-friendliness, crawlability. Local SEO—Google My Business. Search intent—informational, navigational, transactional.

SEM/PPC

Paid search advertising (Google Ads). Keyword targeting, ad copy, landing pages. Quality Score—relevance, CTR, landing page experience. Bid strategies—manual, automated. Display network—banner ads, retargeting. Shopping ads for e-commerce.

Social Media Marketing

Platforms—Facebook, Instagram, TikTok, LinkedIn, Twitter, Pinterest. Organic content—posts, stories, videos. Paid social—targeted ads. Influencer marketing—partnerships. Community management—engagement, customer service. Social listening—monitor conversations.

Content Marketing

Create valuable content to attract, engage audience. Blog posts, videos, podcasts, infographics, ebooks, webinars. Content strategy—topics, formats, distribution. Storytelling—emotional connection. User-generated content.

Email Marketing

Build list, segment, personalize. Types—newsletters, promotional, transactional, drip campaigns. Metrics—open rate, CTR, conversion, unsubscribe. Automation—triggered emails based on behavior. A/B testing subject lines, content.

Analytics

Google Analytics—traffic sources, behavior, conversions. KPIs—impressions, clicks, CTR, CPC, ROAS, LTV. Attribution models—last click, first click, linear, time decay. Conversion rate optimization (CRO)—testing, improving.

What is Brand?

Brand—name, term, design, symbol identifying seller’s goods/services, differentiating from competitors. More than logo—customer’s perception, emotional connection, promise. Brand equity—value added by brand to product.

Brand Identity

Brand identity—how company wants brand perceived. Brand image—actual perception. Kapferer’s brand prism—physique, personality, culture, relationship, reflection, self-image. Visual identity—logo, colors, typography. Brand voice—tone, personality.

Brand Equity Models

Aaker’s model—brand awareness, perceived quality, brand associations, brand loyalty, other proprietary assets. Keller’s CBBE (Customer-Based Brand Equity)—pyramid: salience, performance/imagery, judgments/feelings, resonance. Resonance—intense loyalty, community, attachment.

Brand Positioning

Points of parity (associations shared with competitors), points of difference (unique, desirable). Brand mantra—short phrase capturing brand essence (Nike: “authentic athletic performance”).

Brand Architecture

Branded house—master brand drives all (Virgin, Google). House of brands—independent brands (Procter & Gamble). Endorsed brands—sub-brands with parent endorsement (Courtyard by Marriott). Sub-brands—combine master and individual.

Brand Extensions

Leverage existing brand into new category. Fit—similarity, transferable associations. Risks—dilute brand if fails, cannibalization. Successful examples—Apple (computers to phones), Dove (soap to body care).

Managing Brands

Brand tracking—monitor health metrics (awareness, consideration, preference). Brand revitalization—update aging brands. Rebranding—new identity (sometimes after crisis). Global branding—adapt vs standardize.