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How can microeconomics help small business owners - Essay Example

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Economics is the study and exercise of choice, it is therefore concerned with the manner in which the human wants and desires of people are converted into a number of material goods and services through careful use of scarce and productive resources (Todaro, 1982). Economics is…
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How can microeconomics help small business owners
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Download file to see previous pages Microeconomics derived from the Greek word “mikros” which means small, deals with a part of the economy rather than the whole. It deals with total output, total employment, total spending but in relation to single firms and single households. Microeconomics seeks to understand the individual consumer, the buying decisions that are made at this level and the different factors that affect the consumer behavior.
The subject matter of microeconomics is mainly commodity pricing, factor pricing and welfare theory. Commodity pricing entails how prices of commodities are affected by market forces of demand and supply. The price of commodities usually determines the demand of the products by the consumer. Factor pricing are the determination of rewards for the different factors in the production process that include land, labor, and capital. These earn the business rewards in terms of wages, rents, interest and profits. Welfare theory explains the optimum allocation of resources in order to maximize utility. It is therefore crucial for small business owners to understand more about the consumers and different factors that affect the spending behavior of consumers such as price of products, income and supply
Any business whether start-up or on-going needs to undertake a research of the market and actually draw up its business plan before starting operations. This gives the business its objectives and goals and provides sense of direction in the market. The following are some of the ways in which micro economics aids small business owners achieve their business goals and objectives:
Understanding the individual behavior of the consumer. Consumer decision making is the most critical aspect of the micro economics as consumer spending makes up the highest part of the economy. Consumers after spending usually save surplus invest and put away for future use. Microeconomics determines how much a household save, for how long and ...Download file to see next pagesRead More
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