FINANCE 301 Study Guide - Midterm Guide: Marginal Utility, Tax Rate, Progressive Tax
Document Summary
Corporation: a legal entity defined by collections of contracts that serve to link groups of people together to engage in economic activity. Finance is the study of the allocation of scarce resources through time and with risk. Modern finance refers to knowledge constructed by carefully developing models of rigorously testing the model"s ability to explain behavior. Economic principle #1, positive marginal utility of wealth (pmu): given a choice, rational people prefer more wealth to less wealth, where wealth is the value of all of the things owned. Economic principle #2, diminishing marginal utility of wealth (dmu): more units of consumption create less additional happiness when compared with previous units of consumption. Economic principle #3, diminishing marginal return (dmr): investment occurs to the point where benefits and costs are equal. Economic principle #4, conservation of value (cv), or the law of one price (loop): identical goods must have identical values.
