econ14 - Introductory Economics Economics 101-300 Lecture #...

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(c) Sherrie A. Kossoudji Introductory Economics Economics 101--300 Lecture # 14-post break Sherrie A. Kossoudji If you print the preliminary version of these slides before class, please be aware that they are likely to change right up to class time and sometimes include slides that will not be included in class.
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(c) Sherrie A. Kossoudji These slides do not provide a complete discussion of all of the topics covered in the midterm. The are meant to be an overview.
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(c) Sherrie A. Kossoudji Schedule: Week 10 WEEK 10: WEEK OF MARCH 4 TH Lecture #: 14-15 Discussion #: 7 Subjects/Concepts: Factors of production, theories of income distribution Readings: This week: For Next week: KW Chapter 12, KW Chapter 13 KW Chapter 14, KW Chapter 15 Homework: Graded: Ungraded: TBA Section Quizzes: None Exams: None Other Important Information: None
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(c) Sherrie A. Kossoudji Today’s Class Finish up diversification Factors of production Principal concepts: marginal revenue product. Efficiency wages, unions, reservation wages Principal tools: MRP, supply and demand
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(c) Sherrie A. Kossoudji Midterm Results Average = 16.7 Standard deviation = 4 Median = 17 25 (Perfect score) = 3 students 24 = 33 students Midterm Scores-Winter 2008 0 5 10 15 20 25 30 1 18 35 52 69 86 103 120 137 154 171 188 205 222 239 256 273 290 307 324 341 Students
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(c) Sherrie A. Kossoudji How does one choose assets? The basic choice among investments depends on the relevant characteristics of the investment: Risk—how uncertain is the payoff? Return-how much will you get? Liquidity-how quickly can you get your hands on it? Tax liability-how much will the return be taxed? AND on your own personal attitudes toward risk, the amount you have to invest, your time horizon, and other personal characteristics.
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(c) Sherrie A. Kossoudji Risk and variability in risk Some investments are more certain than others. U.S. government bonds are good unless the government takes a dive; the federal government insures bank accounts through FDIC (Federal Deposit Insurance Corporation); Stocks and mutual funds are considered more risky, options and futures are riskier than that, and junk bonds may be the most risky. Riskiness just means that the return for an asset is not guaranteed. There is often a range of possible returns for assets, some of which may be negative.
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(c) Sherrie A. Kossoudji What is an ideal asset? High return No risk Perfect Liquidity Tax Exempt Does it exist? Nope. Just like the ideal human, the ideal circle, and the ideal job don’t exist, the ideal investment doesn’t either. What’s a poor saver to do?
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(c) Sherrie A. Kossoudji Goals of Investment An investor wants the highest return within constraints. Risk, tax treatment, and liquidity all influence return. The higher the risk, the lower the expected return (more on this later)— risk , expected return Better taxes (the lower are taxes on an investment), higher return. Tax rates , expected return Higher liquidity, lower return. Liquidity , return
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(c) Sherrie A. Kossoudji Risk and Return
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econ14 - Introductory Economics Economics 101-300 Lecture #...

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