A greater understanding of the processes that govern market operations is an essential part of creating and running a successful business. The study of economics enables one to get a bigger picture of the relationships between companies, governments, and customers. This essay reviews the following topics: supply and demand, elasticity, the costs of production and optimization, monetary and fiscal policy, and international trade.
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Supply and demand are the two key concepts in economics. For a particular product, demand refers to the amount of this product that buyers want and can afford, while supply refers to the ability and willingness of sellers to provide it (Mankiw, 2021). These behaviors govern the price fluctuations, creating markets and competition (Mankiw, 2021). Understanding the relationship between supply and demand, and the ability to analyze these parameters and predict their future fluctuations is critical for any entrepreneur.
Elasticity is a concept that extends the two previous notions with a better analysis. Mankiw (2021) states that elasticity is “a measure of the responsiveness of quantity demanded or quantity supplied to a change in one of its determinants” (p. 88). It is determined by numerous factors related to the product and its markets, such as substitute options or the broadness of its defined market (Mankiw, 2021). When operating in a market, knowing the expected elasticity allows one to prepare for any changes in demand or supply adequately.
The costs of production and their optimization are necessary to analyze as well, as it is one of the means of gaining a competitive advantage. They consist of the total value of resources and workforce spent by a firm to produce its goods (Mankiw, 2021). In turn, optimization refers to a search for a balance between the costs of production and the total revenue gained from a product (Mankiw, 2021). Firms must constantly analyze the market situation to find an appropriate balance between the value of inputs, customers’ demands, and revenue gains.
Monetary and fiscal policies play a significant role in economics as a means for governments to uphold the balance of a complex system. Federal Reserve controls the amount of money in the system by using open-market operations for government bonds, which, in turn, affects the supply of funds for banks (Mankiw, 2021). The goal is to balance out the supply and demand of money with the usage of interest rates and taxes.
International trade is another crucial aspect of business operations whose impact can not be underestimated. Due to the differences in national economies, companies might be more willing to sell or purchase goods from abroad, which leads to such benefits as the increase in the availability of goods, higher competition, and others (Mankiw, 2021). Its effects can be perceived by some as adverse, although they benefit a country on a global scale when proper tariffs are in place (Mankiw, 2021). As markets become more globalized annually, the studies of international affairs in a market in which a company operates is essential to predict any changes and prevent the loss of opportunities and the competitive advantage.
In conclusion, this knowledge is an essential part of economics and constitutes a significant portion of the success of any business. By analyzing the data that represents these notions, an educated entrepreneur is able not only to reduce uncertainties but also to capitalize on its results. I believe that these concepts will remain highly relevant in my future career as an entrepreneur.
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Mankiw, N. G. (2021). Principles of economics (9th ed.). Cengage Learning.