Microeconomic Terminology
| Term (memorize) | Definition (memorize) |
|---|---|
| Consumer's Budget constraint | Set (or the equation that defines this set) of consumption bundles that cost just as much as the consumer has to spend. |
| Capital | Assets created by investment and usable in production. |
| Physical capital | Consists of equipment and structures. |
| Human capital | Consists of knowledge and skills. |
| Certainty effect | Involves choice of a certain prize over an alternative offering only uncertain prospects (an instance of Allais's paradox). |
| Comparative advantage | A production unit has a comparative advantage in a good if it can produce the good at lower opportunity cost than other units. |
| Complements | A pair of goods such that an increase in the price of one tends to reduce demand for the other. |
| Composite good | A basket or collection of goods whose prices are constant or changing proportionately to each other. If the prices are constant, the composite good can be conveniently measured in units costing $1.00. |
Business Plans
| Question (memorize) | Answer (memorize) |
|---|---|
| A business plan... | - precisely defines your business - identifies your goals - serves as your firm's resume |
| The basic components include... | - a current and pro forma balance sheet - an income statement - a cash flow analysis |
| Business plans help you... | - allocate resources properly - handle unforeseen complications - make good business decisions - |
Misc
| Term (memorize) | Definition (memorize) |
|---|---|
| Specifict-Unit Cost Method | Based on the specific cost of peticular units |
| FIFO Inventory Costing Method | the first costs into inventory are the first cousts out to cost of goods sold |
| LIFO Inventory Costing Method | the last costs into inventory are the first costs out to cost of goods sold |
| Average-Cost method | based on the average cost of inventory during the period |
| Consistency Principle | A business should use the same accounting methods and procedures from period to period. |
| Disclosure Principle | financial statements must report enough information for outsiders to make knowledgeable decisions about the company. |
| Materiality Concept | A company must perform strictly proper accounting only for items that are significant to the business's financial statements. |
| Conservatism | Reporting the least favorable figures in the financial statements. |
| Lower-of-Cost-orMarket | Rule that an asset should be reported in the financial statements at whichever is lower-its historical cost or its market value. |
| Gross Profit Method | A way to estimate inventory on the basis of the cost-of-goods-sold model: |
| Cost of goods sold formula | Beginning inv + purchases = cog available for sale - ending inv = cost of goods sold |
| Ending inventory formula | Beginning inv + purchases = cog available for sale - cost of goods sold (sales - gross profit = cogs) = ending inventory |
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