In management, there are detailed concepts of economics, its theories, tools and methodologies which are useful for solving the business problems. The manager or the entrepreneur can take the help from the concepts of economies for decision-making.
Economics is a study of two branches:
It is majorly taught to the graduates and undergraduates studying business and management.
Microeconomics is one of the main branches of economics; it studies the actions and performance of the economy on an individual basis. The allocation of available resources among the firms also comes under the study of microeconomics.
The concepts covered under microeconomics
Demand is the term of economics used to define the desire of the individuals to purchase the goods or services by paying the required amount, other factors remaining constant.
Supply describes the amount of a specific good or service available in the market for the consumers. It is directly related to the demand for the product, and the amount is fixed as per the prices prevailing in the market.
The equilibrium is a state in which there is a balance between the forces of equilibrium. The quantity demand becomes equal to the quantity supplied with the change in prices, other factors remaining constant.
Measurement of elasticity
Elasticity is the measure of the responsiveness of the variables to a change in another variable. We can calculate the elasticity as the ratio of change in one variable to the change in another variable.
If the value of elasticity is more than 1, then it represents the demand or supply is affected by price. If the value is less than 1, then there is no impact of the change in price on the demand or supply of product.
Consumer demand theory
Consumer demand theory is the study of consumer behaviour, particularly while making a market purchase referred to the satisfaction of the human needs and wants. It involves the detailed study of marginal and total utility.
Theory of production
The theory of production describes the ideologies according to which the decisions are made on the sale of the commodities as per its production. It also states the quantity of raw material purchased and further used.
Cost of production
It is the cost that the businesses incur in manufacturing the goods. The company has to bear the expenses like procurement of raw materials, wages of labour, transportation cost etc.
It represents the cost which the business or an individual investor fail to get out of the alternative, they did not choose.
The formula for the calculation of opportunity cost
Opportunity cost = return of the option not chosen – the return of option chosen
Market structure can be explained by the firms that produce the homogenous products and the deliver the same kind of services. The structure of these types of markets is identified by the prevailing competition.
There are 4 types of markets:
Macroeconomics is the study of the economy as a whole. It also studies the behaviour of the businesses and individuals as well. Here are some of the important concepts of macroeconomics:
Income and output
Income and output are the major concepts studied in macroeconomics. The goods and services produced during a particular time in the whole country are known as total output. With the sale of the total output produced in a specific period of time, there is the generation of an equal amount of income.
Unemployment is also another important part of macroeconomics. The rate of unemployment is measured by the calculation of a number of people who are not working at present. It is of various types such as:
Inflation and deflation
The inflation refers to a rise in prices of the services and the goods in the whole country. On the other hand, deflation is the situation, when the prices of goods and services tend to decrease. There is the study of the price index for measuring the rate of inflation and deflation.
Macroeconomics is the study of various concepts and policies. Here are some of the policies that are applied by the government as mentioned below:
The monetary authorities control the monetary policies of the country. It stabilises GDP and also helps in reducing the rate of unemployment. The government of the country can issue new currency at any time for pumping money into the economy.
The expenditure and the revenue of the government is controlled using fiscal policy for influencing the economy. It is used by the government for stabilising the economy in the whole procedure of business.