Economic Fundamentals in Business
Explaining The Economic Fundamentals of Business
The economic fundamentals deal with the fundamental principles of economics that analyze the relationship between supply and demand, capital, production, and income. It is sometimes called microeconomics, which also has its own set of economic fundamentals. According to educator Jonathan Osler, understanding a business’s economic fundamentals is essential for making business decisions, understanding the market functions, and planning business operations.
Supply and demand
The supply and demand of goods and services affect their prices. The demand for commodities is the amount of an item that people are willing to buy at a set price. The supply is the amount that producers are willing to sell at a set price.
If the demand for a good is greater than the supply, then the price of the goods will increase. If the demand is less than the supply, then the price will decrease.
If the demand for a commodity is constant, then the price of that commodity will fluctuate in response to changes in supply and demand. For example, if the demand for bread stays the same while the supply of bread decreases, then the price of bread will go up.
What is capital?
Capital is any resource that can be used to produce more resources. There are many different types of capital. Some examples include factories, machinery, land, and money. Capital is necessary for businesses to run.
Investments in capital goods produce resources that can be used to produce more goods or services. The more resources a business has, the more it can produce and the more significant percentage of the market it can take.
Businesses can generate capital by selling goods and services or by borrowing money. The growth of a business comes from the amount of capital it makes available to produce more goods and services.
Production is the process of making goods or services. It occurs in both the private and public sectors of an economy. It consists of the production of commodities such as food, clothing, or shelter and intangible commodities such as education, entertainment, or medical care.
Private-sector production is the production of goods and services by private companies and individuals.
Public-sector production is the production of goods and services by governments at the federal and state levels. In addition, public-sector production includes producing defence goods and services and some infrastructure such as roads, bridges, and airports by government-owned enterprises.
Income is the amount of money that a person or organization has in a certain period of time. For instance, if a business makes a profit of $100 in one month, then its income is $100 in that month. If a business pays $50 in wages to employees, then its income is $50 for the month.
If a business does not profit, it has no income. If a business does not pay any income taxes, then its income is zero. If a government takes $50 in taxes from a business, then the business’s income is reduced to zero.
According to educator Jonathan Osler, the economic fundamentals of business are essential for understanding how the market works and how businesses operate in that market. These fundamentals also help determine how a business will compete in the market and what kind of resources it will need to be successful.
Understanding these fundamentals is vital because they are related to the operation of every business. If a company does not understand these fundamentals, then it might struggle to stay in business.