How Microeconomics Can Help Business Decision-Making

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Microeconomics is vital for businesses and their decision-makers. The principles guiding microeconomics are essential. They help their understanding of economic systems and influence their operations. 

As a result, they make better decisions. It affects both large and small businesses. Here, we discuss the relevance of microeconomics for business decisions. But first, what is microeconomics?

What is microeconomics & why study It?

Microeconomics combines separate individual economic factors. It also explains why certain things happen or may happen. To put it straight, microeconomics studies the decision-making of several business units. It aims to understand what influenced those decisions and their influence on the economy.

What is microeconomics & why study It?

These units refer to individuals, households, and businesses. In fact, as a student, you may need to write essays about this topic. They can check out essay examples on Microeconomics at Studydriver to learn how to go about it, as it helps them understand the topic and also saves time. 

If you familiarize yourself with the free microeconomics essay samples, its completion becomes an interesting educational journey for the student and not a heavy burden.

Why study microeconomics?

There are many benefits to gain from studying this subject. As an entrepreneur, you gain many benefits from knowing the factors affecting your business. The topic, among others, increases your chances of operating a successful company. 

Students of economics are also not left out of its relevance. Some of the reasons to study this field are:

Gets familiar with the basics: Microeconomics introduces you to the individual economic players. It shows how they influence the economy. It helps you in predicting certain events and preparing for them. The knowledge of macroeconomics could also set the bases needed to draft a research paper on economics.

Helps you understand economic trends: A significant importance of studying microeconomics is understanding trends. Microeconomic theories expose the current direction of an economy. Through it, you understand decisions and how they direct the economy. 

Helps to analyze your business: Studying helps you analyze your work. The topic gives tools to measure your company's growth and general market conduct.

Helps you measure satisfaction levels: One major significance of microeconomics is measuring product satisfaction. Upon measurement, you can make policies and decisions for improvement. 

Understanding consumer behavior: Consumer behavior influences the decision of companies. Studying microeconomics gives you insights into consumer behavior and how to use it effectively.

Concepts of microeconomics

An understanding of the basic concepts of microeconomics increases your chances of running a smooth business. Economics is not always complex. Moreover, theoretical concepts are crucial in your understanding.

Concepts of microeconomics

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As you will come to find in any research paper on microeconomics theories, these concepts are:

Price mechanism theory 

You have most likely heard of supply and demand. The sub-topic is not daunting to understand. The relationship between the demand & supply of a commodity, at any given period, determines its price. 

When the demand and supply in a particular market are equal, the market is said to have reached an equilibrium.

Theory of the firm

The microeconomic concepts in the theory of the firm all agree on one basic truth. The truth is, every business organization operates to make profits. The first market structure here is the structure of Perfect Competition. In perfect competition, many firms produce the same types of goods. It is not difficult to enter the market. 

Producers & consumers also have good knowledge of that market.

A monopoly, on the other hand, is one where a firm has sole production in a given market. An oligopoly is a competition between a few firms in the market. The few firms are influential in such a market at the expense of other firms.

Utility theory

The theory expounds on the satisfaction consumers get from purchasing a particular commodity. The value of a commodity is tested by the utility of such a commodity. Here, utility refers to the usefulness consumers get from goods or services. 

The utility of a good or service is important. It determines the demand, price, and profit of such commodities. For example, if Good X is useful to its consumers, the demand increases – raising the price of such a commodity. An increase in price leads to an increase in profit.

Microeconomic factors affecting business

Microeconomics has a far-reaching effect on companies. Unlike macroeconomics, microeconomics concerns every individual business. 

How to Establish Effective Business Goals for Long-Term Success

The following factors are critical if a company must exist. 

Customers: Every company needs customers to function. Companies need profit. Meanwhile, the way to get that is to have customers. There are certain methodologies to get proper customer demographics. Relevant microeconomics essay examples and publications have some guidance to offer. 

Employees: To perform services for many customers, you need workers.  A company needs to hire people to do the labor of creating goods and services. This labor includes the production, packaging, and marketing of goods. In a company, employees must be available at every given period. If a company lacks workers, it will not function.

Investments: Every business needs investments. These investments are relative, depending on the company's nature. For instance, running a large-scale company needs large investments. But, a small to medium-scale business requires less funding to function. What is certain is all companies need investments.

Image: Every company must have a good image to achieve its revenue & sales goals. The most effective way to achieve such a goal is through marketing and an active media presence. This also helps in competing against other companies offering the same services. 

Distribution Channels: Distribution is important to get raw materials. It's also important in getting finished products to the end consumers. Thus, you need a reliable distribution channel. Microeconomics concerns itself with transportation at different levels of business distribution.

Competition: There will always be competition in any market. Industry competition gives impetus to demand in that market. Thus, your business can benefit from healthy competition. However, entering an already-established market has its risks. Already established competition may choke your company. This is one of the limitations of microeconomics you should consider before opening an enterprise.

How does microeconomics influence your business decision-making process?

Now that you’ve learned the theory and advantages of microeconomics, how do they apply to your business? How does microeconomics influence your decision-making as an entrepreneur? 

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We highlight the answers to these questions below.

Policy-making: Microeconomics influences your business decision-making model and activities. You improve policies by analyzing the microeconomic outlook of your company. Different criteria, such as competition, types of customers, and demand & supply, are useful in determining company policies and decisions.

Setting prices: Another way it influences decision-making is by setting prices. The forces of demand and supply determine the appropriate price for a commodity. If the demand for a product is high, then the price for that product is set higher. By contrast, less demand results in lower prices. Moreover, proper competition analysis influences a company to adjust prices as needed. 

Determining services or goods: It helps you decide on the products to offer while building a new company. For example, you can fashion your business around a specific ideal customer sample you have researched upon. You could also avoid going into a particular market due to the stiff competition there. Through the utility tools available, you get to decide if there is a need for the product you want to provide. Microeconomic factors serve as major influences on a company’s choice of commodities.

Production and distribution amount: The forces of demand and supply are the core of a company’s dealings. If demand for your company’s product is high, production increases to match the demand and reach an equilibrium. If demand reduces, the company reduces production to cut costs and reach an equilibrium.

Customer satisfaction: Microeconomic tools help identify if your customers are being satisfied. If so, company endeavors should continue. If not, you should adjust your business decision-making process to intensify your services. A periodic assessment of customer feedback increases customer satisfaction.

Following trends: It shows industry trends and the economy’s trajectory. Employment, investments, production, distribution, and marketing evolve. By studying well-researched microeconomic essays and papers from credible sources, you’re always informed. Your company decides whether to follow the trend or not. 

Helps adjust to macroeconomics: Macroeconomics is how the economy combines and works. Macroeconomics looks at the general economy and external influences. These involve technology, politics, and legal factors. They contribute to the growth or otherwise of a company. Thus, microeconomics helps to adjust your company to the industry, local and global macroeconomics. 

Final thoughts

Studying microeconomics is important for several reasons, some of which we discussed above. So, whether you’re a business owner, an economic policymaker, a philomath, or just a student who needs to turn in microeconomics essays, you should be familiar with its concepts. 

To develop a more profound understanding, it is advisable to read scholarly works of other experienced writers, thought leaders, and relevant research on the subject. Acquaintance with example texts will help you in exchanging topics. 

Economics is a complex topic, so it is important to understand it in detail. We promise you will not regret it if you read the texts!

About the author 

Peter Keszegh

Most people write this part in the third person but I won't. You're at the right place if you want to start or grow your online business. When I'm not busy scaling up my own or other people' businesses, you'll find me trying out new things and discovering new places. Connect with me on Facebook, just let me know how I can help.

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