EXAM ONE NOTES - EXAM ONE NOTES 8.25 Market Dynamics and...

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EXAM ONE NOTES: 8.25 : Market Dynamics and Organization Effectiveness Commerce : the exchange of goods or services o Relates to our standard of living (how well we live; how many things do we have; how safe are we?) o Ex: “Castaway” Bartering : the exchange of goods and services without money Adam Smith : o Professor or Logic held the Chair of Moral Philosophy at the University of Glasgow. o Tutored a young English Duke o Wrote The Wealth of Nations (1776) o INVISIBLE HAND o Division of Labor o “Every individual is continually exerting himself to find out the most advantageous employment for whatever capital he can command. It is his own advantage, indeed, and not that of the society, which he has in view. But the study of his own advantage naturally, or rather necessarily, leads him to prefer that employment which is most advantageous to the society.” Argues that everybody in a market economy figures out how they can best use that capital… translates to modern day… what should they use in the market place? Everybody is better off taking their own concerns into mind and deciding what to use in the market place. o "He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.” If everyone acts in their own interest to maximize exchanges, society is generally better off. Recession: As soon as we start scaring people, their choosing not to engage in exchange… therefore worse off. The person you would have engaged in an exchange with is worse off too. Domino effect. Value generated by the exchange goes in this order: o Value : how useful this thing is to me. Value has to exceed the price at with the exchange will occur; big difference! o Price : o Cost : o [[ Look at ppt slide – 5 ]] Profit Equation: o [[Look at ppt slide – 6 ]] Revenue and Cost Dynamics:
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o [[Look at ppt slide – 7 ]] Product Life Cycle: o [[Look at ppt slide – 8 ]] When does an organization quit selling a product or service? o The value we’re generating is dropping as Q is dropping, so we stop. o The amount of money coming in to the organization is dropping rapidly. Productivity o The overall output of goods and services produced divided by the inputs needed to generate that output. Interested in raising the value of that ratio: Make the numerator bigger Reduce the denominator (cut costs) Decrease outputs if I can increase inputs at an even faster rate Outputs Inputs o Benefits of high productivity: Fosters economic growth and development Increases individual wages without inflation Lowers costs and makes firms more competitive Efficiency: o
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