Definition – A transaction cost is any cost involved in making an economic transaction. For example, when buying a good or buying foreign exchange, there will be some transaction costs (in addition to the price of the good.) The transaction cost could be financial, extra time or inconvenience. Transaction costs could involve. Paying a margin to …
A takeover occurs when one firm (acquiring) buys another firm (target). Takeovers can be classed as friendly or hostile. A successful takeover will lead to an effective merger and the new firm having a greater market share. Friendly takeovers In a friendly takeover, the bidding firm approaches a firms managing board to make an offer …
Utility maximisation refers to the concept that individuals and firms seek to get the highest satisfaction from their economic decisions. For example, when deciding how to spend a fixed some, individuals will purchase the combination of goods/services that give the most satisfaction. Utility maximisation can also refer to other decisions – for example, the optimal …
Variable costs are costs which change with output. As output increases the firm needs to use more raw materials and employ more workers. These costs vary with changes in the output. Variable costs exclude the fixed costs which are independent of output produced. Examples of variable costs Raw materials. Aluminium, plastic, rubber, coffee beans. All …
Vulture capitalism refers to the practice of buying up struggling firms, stripping them off their assets and enabling a few venture capitalists to make a high profit at the expense of genuine business and ordinary workers. The term originates from the Vulture bird which looks for distressed animals and then finishes them off. Vulture capitalism …
The wage-price spiral refers to the strong mutual link and between wage growth and inflation. Rising wages invariably put upward pressure on prices and inflation. High inflation creates upward pressure on wages as workers seek to gain an increase in wages to meet the rising prices and maintain living standards. Thus a wage-price spiral can …
X Inefficiency occurs when a firm lacks the incentive to control costs. This causes the average cost of production to be higher than necessary. When there is this lack of incentives, the firm will not be technically efficient. In theory, the firm could have an average cost curve at “Potential AC” but due to organisational slack, …
A currency carry trade occurs when people borrow in one currency and invest in another country. For example, suppose Japanese interest rates are 0% and US interest rates are 5%. In this case, an investor can buy Yen and borrow from a Japanese bank at 0% interest. He can then exchange Yen for Dollars and …