economic entity assumption

Examples of economic entity assumption in the following topics:

• Assumptions

  • Economists use assumptions in order to simplify economics processes so that they are easier to understand.
  • Economists use assumptions in order to simplify economic processes so that it is easier to understand.
  • Simplifying assumptions are used to gain a better understanding about economic issues with regards to the world and human behavior .
  • It is an example of a graph that works with simplifying assumptions to gain a better understanding of the world and human behavior in relation to economics.
  • Assess the benefits and drawbacks of using simplifying assumptions in economics

• The Importance of Factor Prices

  • This idea suggests that in the long-run, entities will specialize in what costs them less to produce.
  • These entities will then trade the goods they produce for the items that it would be expensive for them to produce.
  • This model is premised on several assumptions.
  • These assumptions are:
  • It is important to note that the shifts in factor prices described above are based entirely on the assumptions found in the H-O Model.

• Ceteris Paribus

  • Economics seeks to interpret, analyze and or evaluate situations that occur between individuals, firms and other entities.
  • Due to the potential for multiple agents and other known and unknown external activities to be involved or present but not relevant to an analysis, economics employs the assumption of "all else constant," which is the English translation of the Latin phrase "ceteris paribus".
  • When the ceteris paribus assumption is employed in economics, all other variables - with the exception of the variables under evaluation - are held constant.

• Institutions, Markets, and Intermediaries

  • A financial intermediary is an institution that facilitates the flow of funds between individuals or other economic entities.
  • A financial intermediary is an institution that facilitates the flow of funds between individuals or other economic entities having a surplus of funds (savers) to those running a deficit of funds (borrowers).
  • Banks provide a safe and accessible environment for individuals and economic entities to deposit excess funds Additionally, banks also provide a service by packaging deposits into loans that are made available to economic agents (individuals and entities) in need of funds.
  • By repurposing funds from savers to borrowers financial intermediaries are able to promote economic growth by providing access to capital.
  • Additionally, through diversified lending practices, banks are able to lend monies to high-risk entities and by pooling with low-risk loans are able to gain in yield while implementing risk management.

• Reporting of Financial Statement Analysis

  • about economic resources, the claims to those resources, and the changes in them;
  • To achieve these basic objectives and implement fundamental qualities, GAAP has four basic assumptions, four basic principles, and four basic constraints.
  • Accounting Entity: assumes that the business is separate from its owners or other businesses.
  • Only when liquidation is certain is this assumption not applicable.
  • The Time-period principle: implies that the economic activities of an enterprise can be divided into artificial time periods.

• Microeconomics

  • Microeconomics deals with the economic interactions of a specific person, a single entity or a company; it is the study of markets.
  • Microeconomics deals with the economic interactions of a specific person, a single entity, or a company.
  • The two key elements of this economic science are the interaction between supply and demand and scarcity of goods .
  • Urban Economics: challenges faced by cities, such as sprawl, traffic congestion, and poverty.
  • Law and Economics: applies economic principles to the selection and enforcement of legal regimes.

• The Role of the Model

  • Any statistical inference requires assumptions.
  • Whatever level of assumption is made, correctly calibrated inference in general requires these assumptions to be correct (i.e., that the data-generating mechanisms have been correctly specified).
  • Incorrect assumptions of simple random sampling can invalidate statistical inference.
  • More complex semi- and fully parametric assumptions are also cause for concern.
  • In particular, a normal distribution would be a totally unrealistic and unwise assumption to make if we were dealing with any kind of economic population.

• Calculating Fair Value

  • Fair value, is a concept used in accounting and economics, defined as a rational and unbiased estimate of the potential market price of a good, service, or asset, taking into account such objective factors as:
  • Level One -- The preferred inputs to valuation are "quoted prices in active markets for identical assets or liabilities," with the caveat that the reporting entity must have access to that market.
  • FASB indicates that assumptions enter into models that use Level 2 inputs, a condition that reduces the precision of the outputs (estimated fair values), but nonetheless produces reliable numbers that are representationally faithful, verifiable and neutral.
  • If observable inputs from levels 1 and 2 are not available, the entity may only rely on internal information if the cost and effort to obtain external information is too high.
  • Significant assumptions or inputs used in the valuation technique are based upon inputs that are not observable in the market and are based on internal information.

• Classical Theory

  • Classical theory, the first modern school of economic thought, reoriented economics from individual interests to national interests.
  • Classical theory was the first modern school of economic thought.
  • It began in 1776 and ended around 1870 with the beginning of neoclassical economics.
  • Classical theory reoriented economics away from individual interests to national interests.
  • Adam Smith was one of the individuals who helped establish classical economic theory.

• Defining Liabilities

  • A liability is defined as an obligation of an entity arising from past transactions/events and settled through the transfer of assets.
  • In financial accounting, a liability is defined as an obligation of an entity arising from past transactions or events, the settlement of which may result in the transfer or use of assets, provision of services or other yielding of economic benefits in the future.
  • A duty or responsibility to others that entails settlement by future transfer or use of assets, provision of services, or other transaction yielding an economic benefit due at a specified or determinable date, on occurrence of a specified event, or on demand.
  • A duty or responsibility that obligates the entity to another, leaving it little or no discretion to avoid settlement.
  • A transaction or event that has already occurred and which obligates the entity.