WU Entrance Exam

• Businesses provide goods and services to satisfy the needs of people and other businesses
• Economy


  Where people and businesses exchange goods and services to fulfil their needs and wants
• Scarcity of resources


  Resources are limited, forcing businesses and individuals to make decisions on how to use them
• Opportunity cost


  The (financial) benefit of the (next best) alternative that is lost or given up in order to choose or achieve something else
• Economics


  The study of how individuals and businesses make decisions to satisfy their needs and wants with limited resources
• Microeconomics


  • Focuses on the behaviour and decisions of individual households and businesses and how they interact
• Macroeconomics


  • Looks at the bigger picture and deals with questions concerning the overall economy
• Exchanging goods and services

  1. Creates a circular flow

  2. Enables division of labour
• Exchanging goods and services is a main characteristic of the economy
• Businesses do not produce primarily for their own needs or work exclusively for their families' and friends' needs, but for their customers
• Businesses usually charge a price for their goods and services so that they get something in return
• Tina and Steve are part of the economy as individuals and will become an active part as entrepreneurs when they start their business
• Economics


  The study of how individuals (as part of private households) and businesses make decisions to satisfy their needs and wants with limited resources
• Economics


  • Comprises a number of scientific fields and branches, two of which are microeconomics and macroeconomics
• Microeconomics


  Focuses on the behaviour and decisions of individual households and businesses and how they interact
• Macroeconomics


  Looks at the bigger picture and deals with questions concerning the overall economy (of one country for example) and aggregate quantities
• Economics as a science strives to explain the observed phenomena and also to make predictions, both based on various theories
• Circular flow of goods, services and money

  1. Households offer labour and receive wages

  2. Businesses offer goods and services that are bought by households and other businesses and receive money for what they sell
• Money


  Fulfils three functions: medium of exchange, unit of account, store of value
• If there is a general rise in prices of goods and services

  The purchasing power of money (i.e. its value) declines
• Inflation


  A general increase in prices of goods and services, measured by price indexes
• Low inflation rates can be tolerated, but if inflation rates are considerably higher, the purchasing power of money decreases considerably and people lose their trust in money
• Role of public authorities (mainly governments)

  1. Levy taxes from households and businesses

  2. Use the money to provide goods, transfer payments and subsidies
• Goods and services like infrastructure, national defence and public security need to be provided by governments and financed by taxation
• In many countries, health care and education are also provided (at least to a large extent) by public authorities
• Division of labour and specialisation

  • Allows individuals and businesses to concentrate on what they can do best
  • Facilitates the exchange of goods and services
• Specialisation within households


  • One individual does the shopping, the other one the cooking
• Specialisation within businesses


  • Some people concentrate on production, others on procurement, some others on sales, on recording all financial transactions or on managing human resources
• Specialisation between businesses


  • Some offer all kinds of furniture, others just beds and couches, some others just produce kitchens
• Specialisation on an international level

  • AT&S has production sites in Europe as well as in Asia with different production characteristics
• While division of labour has many advantages, it also has some disadvantages that need to be considered
• Market economy


  Individuals and businesses are - more or less - allowed to make many of their own economic decisions
• Planned economic system


  Governments play a dominant role in deciding which goods are produced and which services are offered (at which prices), and they control the resources and the means of production
• Over the past decades, many former communist countries that used to have planned economic systems have adopted the main principles of the market economy
• Supply


  The quantity of a good or service that is available for purchase, which mainly depends on the businesses' production capacities, the available resources, and the price that can be charged
• Law of supply


  The higher the price, the higher the supply will be (all other things held constant)
• The shape of the supply curve can be explained by the concept of increasing marginal costs faced by many industries and businesses
• Demand


  The quantity of a good or service that customers are willing and able to buy, which is usually negatively related to the price
• Law of demand


  The higher the price, the lower the quantity demanded will be (all other things held constant)
• Market equilibrium


  The price at which the quantity supplied equals the quantity demanded, with neither a surplus nor a shortage