Economic Factors: Inflation, Cycles, and International Business PDF

**After having defined the concept of inflation, precise its causes.** Inflation **definition**: general and sustained rises in prices. It\'s not an increase in the price of a specific good or service relative to the prices of other goods or services. **Causes**: 1. Demand-led inflation: if dema...

**After having defined the concept of inflation, precise its causes.** Inflation **definition**: general and sustained rises in prices. It\'s not an increase in the price of a specific good or service relative to the prices of other goods or services. **Causes**: 1. Demand-led inflation: if demand for goods increases faster than supply, prices rise **Example**: Post-Pandemic US (2021) 1. Cost-push inflation: the rising costs of production faced by companies are passed on to the prices of goods and services, which in turn rise. **Example**: Global energy crisis (2022-2023): high cost of energy due mainly to the russia-ukraine war. 1. Inflation through money: proponents of monetarist theory identify a relationship between the money supply in circulation and inflation. (too much money chasing too few goods) **Example**: Zimbabwe (2000): government printed too much money which created a situation of hyperinflation. In 2008, inflation rate reached a billion of percent.     1. **How can we analyse the evolution of activity through the cycles?**   There are three main business cycles that have been identified, each with a different period: **Kitchin Cycle**: short cycle lasting 3 to 4 years. It is based on companie\'s inventory policies. It is characterized by an expansion phase lasting around two years, followed by a phase of slower growth, also lasting two years. **The Kuznet cycle**: last 15 to 25 years. It is based on demographic variations that stimulates economic activity in waves. **Kondratiev cycle**: best-known of all business cycles. According to Schumpeter, innovations appear in \"cluster\" that drive growth for 20 to 30 years. Then, as the innovations mature, growth slows before other innovation in turn revive the economy.     1. **What are the different stages for a firm to integrate the international business? Explain each step** **Export-import trade**: most basic form of international commerce, where companies buy and sell goods and services between borders **Foreign direct investment**: investment made by a company in a foreign country to establish a commercial presence. It can be a new subsidiary, the acquisition of an existing company or an investment in an co-owned company **Licensing**: a license is an agreement by which a company gives the right to another company to use its intellectual property, patents, brands or commercial secrets in a foreign country. **Franchising**: type of license in which a company gives the right to another company to use its commercial scheme including its brand, product and services in a foreign country **Management contracts**: an agreement by which a company is hired to deal with the operation of another company in a foreign country   The OLI paradigm can help a company choose how to integrate the international market: 1. **Ownership advantage**: it leads to the possession of a specific asset/advantage of the MNC, that is transerable to the rest of the world. It allows to cover the costs associatied with its internationalization (language and cultural barrier, local demand...) 2. **Location advantage**: asset must be sustainable for the company to operates it abroad rather than at home. The aim here is to find markets that minimize production costs, marketing costs... 3. **International advantage**: avoid the risk of selling the technology to other firms, no exposure to competition   1. **Which factors determine the selling price of a good / service?** Supply and demand are the 2 factors influencing the selling price of a good/service. Supply: quantity of a product offered for sale by sellers for a given price Demand: quantity of product demanded by buyers for a given price   For a given supply, the higher the demand, the higher the prices For a given demand, the higher the supply, the lower the prices In practice, demand and supply often move at the same time. So, you have two forces that you can\'t see in the data   **Equilibrium price**: price at which quantity supplied is equal to quantity demanded. A **price ceiling** (government tax) causes many seller to exit the market, causing a shortage: price and quantities go down.   1. **The OLI paradigm** 3 existing stages to integrate the international business (OLI): 1. **Ownership advantage**: it leads to the possession of a specific asset/advantage of the MNC, that is transerable to the rest of the world. It allows to cover the costs associatied with its internationalization (language and cultural barrier, local demand...) 2. **Location advantage**: asset must be sustainable for the company to operates it abroad rather than at home. The aim here is to find markets that minimize production costs, marketing costs... 3. **International advantage**: avoid the risk of selling the technology to other firms, no exposure to competition     1. **What are the different development types in international business? Explain them** **Export-import trade**: most basic form of international commerce, where companies buy and sell goods and services between borders **Foreign direct investment**: investment made by a company in a foreign country to establish a commercial presence. It can be a new subsidiary, the acquisition of an existing company or an investment in an co-owned company **Licensing**: a license is an agreement by which a company gives the right to another company the right to use its intelectual property, patents, brands or commercial secrets in a foreign country. **Franchising**: type of license in which a company gives the right to another company to use its commercial scheme including its brand, product and services in a foreign country **Management contracts**: an agreement by which a company is hired to deal with the operation of another company in a foreign country   1. **Does talking about a balance of payments deficit make sense?** No it doesn\'t make sense since balance of payment is a statistical document describing the operations of economical agents on a national land with the rest of the world on a given period, usually a year. Talking about deficit/excedent of the balance of payment means usually current account balance. Balance of payment works in 2 ways meaning that one operation gives 2 different explanations. For example, exports of goods is considered balance of current account. Its settlement is considered debt of financial account, therefore the sum of both is equal to 0.