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Questions and Answers
What is the fundamental economic problem?
What is the fundamental economic problem?
What is the focus of macroeconomics?
What is the focus of macroeconomics?
What is the value of the next best alternative that is given up when choosing one option over another?
What is the value of the next best alternative that is given up when choosing one option over another?
What determines the price of a good or service?
What determines the price of a good or service?
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What is the total value of goods and services produced within a country's borders?
What is the total value of goods and services produced within a country's borders?
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What is the percentage change in the general price level of goods and services over time?
What is the percentage change in the general price level of goods and services over time?
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What is a country's ability to produce a good or service more efficiently than another country?
What is a country's ability to produce a good or service more efficiently than another country?
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What is a country's ability to produce a good or service at a lower opportunity cost than another country?
What is a country's ability to produce a good or service at a lower opportunity cost than another country?
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What type of financial statement provides a snapshot of a company's financial position at a specific point in time?
What type of financial statement provides a snapshot of a company's financial position at a specific point in time?
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Which type of cost remains the same even if the level of production changes?
Which type of cost remains the same even if the level of production changes?
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What is the purpose of an internal audit?
What is the purpose of an internal audit?
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Which financial statement shows the inflows and outflows of cash and cash equivalents over a specific period of time?
Which financial statement shows the inflows and outflows of cash and cash equivalents over a specific period of time?
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What is the purpose of a risk assessment in an audit?
What is the purpose of a risk assessment in an audit?
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Which type of cost accounting system tracks costs associated with a specific job or project?
Which type of cost accounting system tracks costs associated with a specific job or project?
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What is the purpose of an external audit?
What is the purpose of an external audit?
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Which financial statement reports changes in a company's equity over time?
Which financial statement reports changes in a company's equity over time?
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What is the primary purpose of control evaluation in auditing?
What is the primary purpose of control evaluation in auditing?
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Which type of tax is levied on an organization's profits or income?
Which type of tax is levied on an organization's profits or income?
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What is the purpose of tax planning in taxation?
What is the purpose of tax planning in taxation?
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Which type of financial analysis involves calculating and interpreting financial ratios?
Which type of financial analysis involves calculating and interpreting financial ratios?
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What is the primary purpose of substantive procedures in auditing?
What is the primary purpose of substantive procedures in auditing?
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Which financial analysis tool is used to determine the level of sales required to break even?
Which financial analysis tool is used to determine the level of sales required to break even?
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What is the primary purpose of financial analysis?
What is the primary purpose of financial analysis?
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Which type of financial analysis involves analyzing financial data over time to identify trends and patterns?
Which type of financial analysis involves analyzing financial data over time to identify trends and patterns?
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Study Notes
Definition and Branches
- Economics is the social science that studies the production, distribution, and consumption of goods and services.
- Two main branches:
- Microeconomics: examines the behavior and decision-making of individual economic units, such as households, firms, and markets.
- Macroeconomics: analyzes the economy as a whole, focusing on issues like economic growth, inflation, unemployment, and international trade.
Key Concepts
- Scarcity: the fundamental economic problem of unlimited wants and needs, but limited resources.
- Opportunity Cost: the value of the next best alternative that is given up when choosing one option over another.
- Supply and Demand: the price of a good or service is determined by the intersection of the supply curve (quantity producers are willing to sell) and demand curve (quantity consumers are willing to buy).
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Economic Systems: ways of organizing the production and distribution of goods and services, including:
- Market Economy: private ownership, free market, and profit motive.
- Command Economy: government control, central planning, and state ownership.
- Mixed Economy: combination of market and command economy characteristics.
Economic Indicators
- Gross Domestic Product (GDP): total value of goods and services produced within a country's borders.
- Inflation Rate: percentage change in the general price level of goods and services over time.
- Unemployment Rate: percentage of the labor force that is currently unemployed and actively seeking employment.
- Interest Rate: rate at which borrowers pay interest on loans and savers receive interest on deposits.
International Trade
- Absolute Advantage: a country's ability to produce a good or service more efficiently than another country.
- Comparative Advantage: a country's ability to produce a good or service at a lower opportunity cost than another country.
- Free Trade: trade between countries without tariffs, quotas, or other trade barriers.
- Protectionism: trade policies that restrict imports and protect domestic industries.
Definition and Branches of Economics
- Economics studies the production, distribution, and consumption of goods and services.
- The two main branches of economics are Microeconomics and Macroeconomics.
Microeconomics
- Examines the behavior and decision-making of individual economic units, such as households, firms, and markets.
Macroeconomics
- Analyzes the economy as a whole, focusing on issues like economic growth, inflation, unemployment, and international trade.
Key Concepts
Scarcity
- The fundamental economic problem of unlimited wants and needs, but limited resources.
Opportunity Cost
- The value of the next best alternative that is given up when choosing one option over another.
Supply and Demand
- The price of a good or service is determined by the intersection of the supply curve and demand curve.
Economic Systems
- Ways of organizing the production and distribution of goods and services.
Market Economy
- Private ownership, free market, and profit motive.
Command Economy
- Government control, central planning, and state ownership.
Mixed Economy
- Combination of market and command economy characteristics.
Economic Indicators
Gross Domestic Product (GDP)
- Total value of goods and services produced within a country's borders.
Inflation Rate
- Percentage change in the general price level of goods and services over time.
Unemployment Rate
- Percentage of the labor force that is currently unemployed and actively seeking employment.
Interest Rate
- Rate at which borrowers pay interest on loans and savers receive interest on deposits.
International Trade
Absolute Advantage
- A country's ability to produce a good or service more efficiently than another country.
Comparative Advantage
- A country's ability to produce a good or service at a lower opportunity cost than another country.
Free Trade
- Trade between countries without tariffs, quotas, or other trade barriers.
Protectionism
- Trade policies that restrict imports and protect domestic industries.
Financial Statements
- Provide information about a company's financial performance and position.
- Four main types:
- Balance Sheet: snapshot of a company's financial position at a specific point in time, including assets, liabilities, and equity.
- Income Statement: summary of a company's revenues and expenses over a specific period of time, such as a month or year.
- Cash Flow Statement: shows the inflows and outflows of cash and cash equivalents over a specific period of time.
- Statement of Stockholders' Equity: reports changes in a company's equity over time.
Cost Accounting
- Identifying, classifying, and recording costs associated with a business.
- Types of costs:
- Fixed costs: remain the same even if the level of production changes, such as rent and salaries.
- Variable costs: change with the level of production, such as raw materials and labor costs.
- Direct costs: directly related to the production of a specific product or service, such as labor and materials.
- Indirect costs: not directly related to the production of a specific product or service, such as overhead costs.
- Cost accounting systems:
- Job costing: tracks costs associated with a specific job or project.
- Process costing: tracks costs associated with a specific process or production department.
Auditing
- Examining and evaluating an organization's financial statements and internal controls.
- Types of audits:
- Internal audit: conducted by an organization's internal audit team to evaluate internal controls and identify areas for improvement.
- External audit: conducted by an independent auditor to provide an objective opinion on an organization's financial statements.
- Audit procedures:
- Risk assessment: identifying areas of high risk and focusing audit procedures on those areas.
- Control evaluation: evaluating an organization's internal controls to identify weaknesses and opportunities for improvement.
- Substantive procedures: testing transactions and account balances to ensure accuracy and completeness.
Taxation
- Imposing and collecting taxes on an organization's income or profits.
- Types of taxes:
- Income tax: tax on an organization's profits or income.
- Value-added tax (VAT): tax on the value added to a product or service at each stage of production.
- Property tax: tax on an organization's property or assets.
- Tax accounting:
- Tax planning: identifying opportunities to minimize tax liability and maximize tax savings.
- Tax compliance: ensuring that an organization is in compliance with all tax laws and regulations.
Financial Analysis
- Analyzing and interpreting financial data to make informed business decisions.
- Types of financial analysis:
- Ratio analysis: calculating and interpreting financial ratios, such as the current ratio and debt-to-equity ratio.
- Trend analysis: analyzing financial data over time to identify trends and patterns.
- Industry analysis: comparing an organization's financial performance to that of its industry peers.
- Financial analysis tools:
- Financial ratios: used to evaluate an organization's financial performance and position.
- Break-even analysis: used to determine the level of sales required to break even.
- Sensitivity analysis: used to evaluate how changes in variables affect an organization's financial performance.
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Description
Learn about the basics of economics, including its definition, branches, and key concepts like scarcity. Discover microeconomics and macroeconomics, and their roles in understanding the economy.
