ECONOMICS FOR BUSINESS

Economics for Business

Economics for Business

Economics and Their Relation to Business

Nature of economics

To develop a strong and competitive society it is very important to strengthen the economy. Economy play its role by helping in building knowledge of production, transfer, effective use of resources, consumption pattern, and dealing with scarcity of resources. Adam Smith is known as the father of modern economics, he gave the definition of economics in 1776 in his book “Wealth of Nations”, as the main purpose of any country's political economy is to raise the power and resources in the economy. We can expand our business, improve productivity, increase utilization; decreases waste, and target the need of consumer by effective use of economic knowledge in the area of our business.

Alfred Marshall, in his book “Principles of Economics” defines economics as the understanding of human behavior in the life business of everyday. Economics is a science of society that deals with the relationship of the consumption of resources and its scarcity. There are three fundamental questions that we need to answer before we allocate resources in our business to produce goods. These questions are: What and how much services or goods we need to produce by utilizing existing resources? How we will produce these services and/or good within available resources? And for whom these services or/and goods will be produced, means who are our customers? If we answer these questions we can improve the business performance.

The models developed in economics are very much helpful for our business decision making. Through the use of those models we can forecast demand of product, its supply, expected variations, and other future aspects related to our product and services by the help of different variable such as tax rate, income level, social status, consumption pattern, and several other factors that can impact our business. Mainly economics is divided into two categories; one is micro economics which deals with individual behavior in detail, and it deals with individual market where market is defined as a place where buyer and seller interacts. Other is Macroeconomics which deals with macro factors of the economy. The major concerns of macroeconomics are monetary policy and fiscal policy in which growth of economy, tax rates, budgets, and other government policies regarding economy are the concerns. These macroeconomic factors have great influence over businesses decision making, for example if government increases taxes on luxurious cars then BMW cars will become more expensive.

Types of Business by Sector and Size

Businesses are mainly divided into five different categories, sole trader, partnership, public limited company, and private limited company. Partnership and sole trader are a type of business which rate not incorporated, sole trader and partnership business are run by single owners or owner, they have unlimited liability and have no separate legal entity, all the responsibilities and liabilities are born by the owner(s), for example a freelance writer.

A limited liability partnership company is a type of company which shares characteristics of partnership (owned by two or more partners) company ...