Economics is one aspect of business that entrepreneurs should be familiar with. After all, business is run by economic trends. The law of supply and demand, for example, defines the prices of commodities. It also determines what particular goods are more saleable and what aren’t. The condition of the gross domestic product also gives investors insight as to what how healthy a country’s financial environment is. And it dictates how governments, banks and companies should and will act within the succeeding accounting year. Needless to say, a significant focus should be diverted by an entrepreneur to business economics. It is only this way that he will be able to weather any entrepreneurial problems.
Remember, business isn’t merely a numbers game. It is also influenced by certain economic conditions within the macro (country) and micro (individual and family) level. It can be that there is some diversity between the needs of a country and of its people. Therefore, a business cannot be assured that while it patronized one sector, it will also be supported by another.
Take bootleg products for instance. It’s actually a profitable industry because a lot of small consumers appreciate its affordability. Yes, it’s a given that quality of the product is compromised. But the difference in the costs is very much valued in the micro system. However, it’s a different story at the macro level. Since distributing pirated products is illegal and costs the country huge losses in tax collection and business permit payments, it is greatly frowned upon.
An entrepreneur applies business economic principles in order to weigh whether or not certain business decisions are smart or risky. It looks at possible changes and movements in the economic setting of a country in order to gather a more viable conclusion. Bottom line, knowledge in how certain circumstances affect the overall performance of the country’s economy gives entrepreneurs more control over their investments.
To understand the advantage derived by an entrepreneur from business economics, let’s play out a scenario here. Suppose an earthquake struck a commercial capital in a progressive country. It cost millions of dollars in damages and displaced thousands of people from their homes and work. Let’s say that this commercial capital produces some of the most essential goods supplied to other parts of the country. What would be its impact to the overall business dynamics? And how would you be able to make business given this situation?
Seeing through the lens of economics, the entrepreneur can predict that the collapse of factories and business centers as well as the displacement of workers will cause a cease in productivity. Now, since there is less supply of goods, their prices will sky rocket. This actually favorable and companies can benefit from this. But considering that there are less people in the vicinity, it is expected that there will be a decline in estimated profits as there are fewer consumers. Regardless, scarcity will create a need. Entrepreneurs just have to maneuver their marketing strategies with some consideration to customer’s conditions.
Rehabilitation focus will also diminish people’s purchasing power, thereby weakening economic activities. Since there are less work, less consumerism, and fewer businesses, the economic status of that capital will spiral down dramatically. This will affect how investors see it. In the long run, there will be fewer incoming finances. This is unhealthy.
So businessmen should not relish in scarcity for long. In order to recuperate and improve, entrepreneurs can apply for loans and start rebuilding infrastructures. But this will be a risk on their part as they have to work double time and guarantee that upon completion of rehabilitation, they will gain greater revenue. But they have to forecast, will their products and services still be embraced post disaster? Again, economics will answer this.