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FHCE 3200 Lecture Notes - Lecture 2: Human Capital, Social Capital

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skychimpanzee456
27 Apr 2018
School
University of Georgia
Department
Financial Planning, Housing and Consumer Economics
Course
FHCE 3200
Professor
Williams

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9/5/2017 Reading Questions 2 Hiren Patel
1.Establishing, maintaining, and monitoring your social capital is important. Write a brief summary
describing how your relationships with the closest people in your life are today. What could strengthen
those relationships?
The closest people in my life would be my parents and my relationship with them is great. At the end of
the day, they pay for y eduatio ad are the reaso hy I do’t hae ay loas. I see the eery to
weeks and I love them very much. I see that it is my responsibility to take care of them because they are
takig great are of e. It’s hard to say hat ould stregthe our relatioship eause I see the ofte
and they are extremely helpful financially, I guess I can inform them more of how appreciative towards
them.
2.Take an inventory of your assets—the things you own. What are they worth? Now calculate the value
of your human capital? While this is difficult to answer, for younger people working full-time a rough
estimate of your human capital is your annual pay (or expected annual pay after you graduate) divided
by .06. How does this number compare to the value of your other assets? Summarize your calculations
and write 1-2 paragraphs on what you found.
The rough estimate of my assets is around $5000. The rough estimate of my human capital is $50000
divided by .06, which is $833,333.33.
By comparing the two numbers, it is obvious that my human capital is higher. This makes sense because
I do’t hae a jo right o ad I a’t uy e thigs that ill irease y assets, hoeer, when I do
get a job, my assets will increase slowly. As for my Human capital, it will increase as my career
progresses. My human capital will increase due to relocating for a better job, promotions, attaining
more skills etc. Eventually my human capital should ath y assets he I’ older eause I o’t e
able to work, therefore my human capital will decline. I also I understand that random things may
happen in life, that may potentially decrease my human capital.
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Document Summary

1. establishing, maintaining, and monitoring your social capital is important. Write a brief summary describing how your relationships with the closest people in your life are today. The closest people in my life would be my parents and my relationship with them is great. At the end of the day, they pay for (cid:373)y edu(cid:272)atio(cid:374) a(cid:374)d are the reaso(cid:374) (cid:449)hy i do(cid:374)"t ha(cid:448)e a(cid:374)y loa(cid:374)s. i see the(cid:373) e(cid:448)ery t(cid:449)o weeks and i love them very much. 2. take an inventory of your assets the things you own. While this is difficult to answer, for younger people working full-time a rough estimate of your human capital is your annual pay (or expected annual pay after you graduate) divided by . 06. Summarize your calculations and write 1-2 paragraphs on what you found. The rough estimate of my assets is around . The rough estimate of my human capital is divided by . 06, which is ,333. 33.

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Related Questions

2. Get ready

Read the following conversation that Sharon Rodriguez, assistant in the Finance Department, and Derek Opazo, tour developer for the Americas, are having about what Derek can do to increase reservations for his tours.

1

Sharon: I looked up the results of recent studies on some travel trade association Web sites. Adventure Travel magazine also had a couple of great articles about tour sales.

Derek: Interesting. What did they have to say?

2

Sharon: According to one survey I found, right now you could work on building your relationships with existing customers. Current customers are more likely to take another tour with us than new customers, especially if they have a personal connection to the company.

Derek: So I should personally contact customers that have already taken one of my tours.

3

Sharon: That sounds like it might be helpful in the short term. Anything else?

Derek: Oh, I don’t know. People just don’t want to travel right now. They’re nervous about the economy.

4

Sharon: Why do you think reservations are declining for your tours?

Derek: I’m not really sure. I think I need to expand my mailing list and send out a fresh batch of brochures to new prospects.

5

Sharon: Yeah, that’s what a lot of people think. I did some research to find out if that’s the case throughout the travel industry.

Derek: Really? What kind of research did you do?

6

Sharon: I’m actually going to write a brief report on what I found, but overall, customers report that they are waiting to see what happens with the economy before spending money on travel. The good news is that they are delaying their plans, not abandoning them.

Derek: That’s good to know. So people expect to start traveling again in the near future.

7

Sharon: When they have a good sense of their future finances, our typical customers say that they will start traveling again. Also, when they start traveling again, customers will be looking for high-value experiences like the adventure and cultural tours that you develop.

Derek: Really? But what should I do right now?

8

Sharon: Exactly. That means a lot of phone calls, but you are likely to get good results. Also, people say they are looking for value—they want extra services and special experiences, not just the usual guided tours. Biking, diving, sailing, and surfing are fairly popular.

Derek: That means I need to update my tours.

9

Sharon: Right. Updating your tours will take some time, but when you do, they’ll stand out from the competition.

Derek: I guess I need to get busy. Thanks for all the helpful information.

3. Now you try it

In the following space, reorganize the conversation according to the guidelines in the “Working with Problem Owners and Stakeholders” lesson.

Click here to reorganize the conversation. You can list each part of the conversation in order as identified by number. For example, if part 7 comes first following by part 2, list 7, 2, etc.

View the video transcript below and share your thoughts on the economic concepts that you believe are applicable.

Question# 1. Provide a rationale on whether or not a firm has to possess market power in order to raise prices.

How to Raise Prices Without Losing Customers

JJ RAMBERG, anchor:

With gas prices soaring and the economy tightening, you may think it’s not possible to charge your customers more. But, it turns out you can successfully raise prices without driving those customers away. Bob Prosen runs the consulting company, Prosen Center for Business. He’s helped business leaders rapidly increase performance, productivity and profits, and he’s also author of the book, “Kiss Theory Goodbye: Five Proven Ways to Get Extraordinary Results in Any Company.” Bob, welcome.

Mr. BOB PROSEN: Thank you.

RAMBERG: So, if you’re going to raise prices on your customers, one of the things you say is don’t surprise them. So, how do you give them warning?

Mr. PROSEN: Well, our customers are very important to us, lets not surprise them. Let’s let them know in advance that prices will increase. But, it’s important to explain to them in their language as to why prices are increasing. For instance, if its fuel surcharges, they’ll understand that. But its important we put it in their language so that they, in turn, can pass that along and plan for it in their own business.

RAMBERG: So, a lot of times when people are paying more, they expect to get more. So, you should communicate increased value I assume. But is saying, um--gas prices are going up for me, is that uh--the same as saying, you’re going to get more for your money?

Mr. PROSEN: No, definitely it’s not. In fact, the equation for value is benefits plus price. So, if prices are going to go up we have to have increased benefits for our customers. So, we can do things like under promise and over deliver. Give them a little bit more. Understand their customer’s customer. So that when we provide our services to them, they’re customized for our customers. They see more value, we understand their business, and therefore they’ll be more appreciative of what we do and less sensitive to price increases.

RAMBERG: That seems to--to follow into your next point, or go right into your next point, which is, track the quality of your products.

Mr. PROSEN: This is absolutely critical, and we can track the quality of our products many ways. Customers call us, complaints, warranty, rework. If we’ll deal with that, capture that, and inside of “Kiss Theory Goodbye” I teach business people how to reduce these problem occurrences and increase the quality of their product. You do it for two reasons: One, customers like us a lot more when things work the way they’re supposed to; and our cost structure goes down therefore maybe we don’t have to increase our prices as much and we can be more competitive.

RAMBERG: And then, also, relationships matter.

Mr. PROSEN: Oh this…

RAMBERG: So, if you have a good relationship, you can do more within that relationship.

Mr. PROSEN: Oh, definitely. People like to do business with people they like. So, lets make sure we stay in touch with our clients. Customize what we touch them with. You know, for instance, when I travel and I deal with business people, I always carry thank you notes in my briefcase. When I’m finished, I send them a note. It’s a rarity these days to even get a thank you note.

RAMBERG: Yeah, it absolutely is. So, about how much can you raise prices by? Can you suddenly figure out that your costs are gone up so much because of energy prices, or food prices, or gas prices, whatever it is, um--and raise it by 50%? Should you do it incrementally? Should you do it all at once? How does it work?

Mr. PROSEN: Yeah, that’s a great question. It depends on what industry you’re in. It depends on what you customers are doing. It depends on a number of things that determine how much, and when, and the frequency of our ability to raise prices. Therefore, what I always recommend to business leaders is work on your cost structure; make sure you’re efficient and effective. Keep your costs as low as you can. Therefore, you can be more competitive on your pricing. Sometimes, you have to pass along the price. Other times, try to absorb what you can through improved efficiencies.

RAMBERG: Should you be looking at your competitors and how much they’re charging?

Mr. PROSEN: Yes, you should absolutely be looking at your competitors. We always want to know what they’re charging. And by the way, we want to differentiate our products and services from our competitors. And, if we can prove a higher value by dealing with us versus our competitor we should be able to articulate that, and we do it based on facts because we know what’s going on in the industry.

RAMBERG: Alright, Bob I know a lot of people are thinking about raising prices so thanks for giving them some tips on how to actually do it.

Mr. PROSEN: My pleasure.

View the video transcript below and share your thoughts on the economic concepts that you believe are applicable.

Question# 1. Why does a firm have to posses market power in order to raise prices.

How to Raise Prices Without Losing Customers

JJ RAMBERG, anchor:

With gas prices soaring and the economy tightening, you may think it’s not possible to charge your customers more. But, it turns out you can successfully raise prices without driving those customers away. Bob Prosen runs the consulting company, Prosen Center for Business. He’s helped business leaders rapidly increase performance, productivity and profits, and he’s also author of the book, “Kiss Theory Goodbye: Five Proven Ways to Get Extraordinary Results in Any Company.” Bob, welcome.

Mr. BOB PROSEN: Thank you. RAMBERG: So, if you’re going to raise prices on your customers, one of the things you say is don’t surprise them. So, how do you give them warning?

Mr. PROSEN: Well, our customers are very important to us, lets not surprise them. Let’s let them know in advance that prices will increase. But, it’s important to explain to them in their language as to why prices are increasing. For instance, if its fuel surcharges, they’ll understand that. But its important we put it in their language so that they, in turn, can pass that along and plan for it in their own business.

RAMBERG: So, a lot of times when people are paying more, they expect to get more. So, you should communicate increased value I assume. But is saying, um--gas prices are going up for me, is that uh--the same as saying, you’re going to get more for your money?

Mr. PROSEN: No, definitely it’s not. In fact, the equation for value is benefits plus price. So, if prices are going to go up we have to have increased benefits for our customers. So, we can do things like under promise and over deliver. Give them a little bit more. Understand their customer’s customer. So that when we provide our services to them, they’re customized for our customers. They see more value, we understand their business, and therefore they’ll be more appreciative of what we do and less sensitive to price increases.

RAMBERG: That seems to--to follow into your next point, or go right into your next point, which is, track the quality of your products.

Mr. PROSEN: This is absolutely critical, and we can track the quality of our products many ways. Customers call us, complaints, warranty, rework. If we’ll deal with that, capture that, and inside of “Kiss Theory Goodbye” I teach business people how to reduce these problem occurrences and increase the quality of their product. You do it for two reasons: One, customers like us a lot more when things work the way they’re supposed to; and our cost structure goes down therefore maybe we don’t have to increase our prices as much and we can be more competitive.

RAMBERG: And then, also, relationships matter.

Mr. PROSEN: Oh this…

RAMBERG: So, if you have a good relationship, you can do more within that relationship.

Mr. PROSEN: Oh, definitely. People like to do business with people they like. So, lets make sure we stay in touch with our clients. Customize what we touch them with. You know, for instance, when I travel and I deal with business people, I always carry thank you notes in my briefcase. When I’m finished, I send them a note. It’s a rarity these days to even get a thank you note.

RAMBERG: Yeah, it absolutely is. So, about how much can you raise prices by? Can you suddenly figure out that your costs are gone up so much because of energy prices, or food prices, or gas prices, whatever it is, um--and raise it by 50%? Should you do it incrementally? Should you do it all at once? How does it work?

Mr. PROSEN: Yeah, that’s a great question. It depends on what industry you’re in. It depends on what you customers are doing. It depends on a number of things that determine how much, and when, and the frequency of our ability to raise prices. Therefore, what I always recommend to business leaders is work on your cost structure; make sure you’re efficient and effective. Keep your costs as low as you can. Therefore, you can be more competitive on your pricing. Sometimes, you have to pass along the price. Other times, try to absorb what you can through improved efficiencies.

RAMBERG: Should you be looking at your competitors and how much they’re charging?

Mr. PROSEN: Yes, you should absolutely be looking at your competitors. We always want to know what they’re charging. And by the way, we want to differentiate our products and services from our competitors. And, if we can prove a higher value by dealing with us versus our competitor we should be able to articulate that, and we do it based on facts because we know what’s going on in the industry.

RAMBERG: Alright, Bob I know a lot of people are thinking about raising prices so thanks for giving them some tips on how to actually do it.

Mr. PROSEN: My pleasure.