Class3

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Class3

  1. 1. Economics for Journalists Week 3: Corporations Jeffrey TimmermansTuesday, 5 February, 13
  2. 2. Review: Supply & DemandTuesday, 5 February, 13
  3. 3. Economic Efficiency of Christmas & Birthdays ✤ This exercise is designed to examine the economic efficiency of Christmas & Birthday gifts. ✤ Record at least three gifts that you received, from whom you received the gifts, the amount you think was paid for the gift, and – not counting the sentimental value – what you would be willing to pay for them yourself.Tuesday, 5 February, 13
  4. 4. Your gift record Amount Amount Gift From paid for gift you’d pay for giftTuesday, 5 February, 13
  5. 5. Valuing your gifts ✤ Were any gifts "good values"? That is, are there any gifts that you value more than what you think was paid for them? Who tended to give you these gifts? ✤ Were any gifts "bad values"? That is, are there any gifts that you value less than what you think was paid for them? Who tended to give you these gifts?Tuesday, 5 February, 13
  6. 6. Price Vs. Value of Gifts $150 $120 Price $90 Value $60 $30 $0 Aunt/Uncle Sibling Parents Sig. Other Grandparent Friend All Source: Survey of Yale Undergrads on the perceived value & price of christmas gifts received, from “The Deadweight Loss of Christmas” by Joel Waldfogel; N=246Tuesday, 5 February, 13
  7. 7. Consumer Surplus D S Price Consumer Surplus Price Paid Producer Surplus 0 QuantityTuesday, 5 February, 13
  8. 8. Group Discussion ✤ In your groups, please think of at least three ideas for stories based on, or using, these data.Tuesday, 5 February, 13
  9. 9. CorporationsTuesday, 5 February, 13
  10. 10. Why companies exist ✤ Allow individuals to pool capital and share risk ✤ To accomplish complicated tasks like international trade & creation of complex products ✤ To make money (profit) for its ownersTuesday, 5 February, 13
  11. 11. Private vs. Public ✤ Private companies (“closely held”) ✤ Family-owned ✤ Private-equity owned ✤ Public companies ✤ Owned by shareholders ✤ Shares traded on stock exchangeTuesday, 5 February, 13
  12. 12. Public corporations ✤ Legal entities registered in a particular location ✤ Add value to raw materials or provide services, and sell them for a profit (hopefully) ✤ Sell shares in the company to the public ✤ Disclose details on performance every three or six monthsTuesday, 5 February, 13
  13. 13. Key industries ✤ Agriculture ✤ Transportation ✤ Admin/Waste Mgmt ✤ Mining ✤ Information ✤ Educational Services ✤ Utilities ✤ Finance & Insurance ✤ Health Care ✤ Construction ✤ Real Estate ✤ Arts & Entertainment ✤ Manufacturing ✤ Professional Services ✤ Accommodation & Food ✤ Wholesale Trade ✤ Management of Companies ✤ Other Services & Public ✤ Retail Trade Administration Source: 2012 North American Industry Classification SystemTuesday, 5 February, 13
  14. 14. How public companies function Initial capital Additional share/bond Produce goods or sales services Use profit to grow Sell goods for more company or than cost of production compensate owners for riskTuesday, 5 February, 13
  15. 15. Costs ✤ Fixed costs ✤ Overhead (rent etc.) ✤ Variable costs ✤ Raw materials ✤ LaborTuesday, 5 February, 13
  16. 16. Profit ✤ Profit is what’s left from revenue after all costs of doing business are subtracted ✤ A public company’s main responsibility to shareholders is to maximize profit ✤ Maximize revenue/minimize costs ✤ Because profit is what’s used to pay dividends and grow the businessTuesday, 5 February, 13
  17. 17. Types of corporate stories ✤ Initial public offering (first sale of shares to public) ✤ New product/line of business ✤ Top executive changes ✤ Fundraising: secondary share sales & bond issues ✤ Mergers & acquisitions ✤ Earnings announcementsTuesday, 5 February, 13
  18. 18. Earnings announcements ✤ Three main types of corporate disclosure documents: ✤ Profit & Loss Statement (also called P&L or income statement) ✤ Balance Sheet ✤ Cash Flow StatementTuesday, 5 February, 13
  19. 19. The Balance Sheet BarrierTuesday, 5 February, 13

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