ECONOMICS THE FOUNDATION OF ENTREPRENEURSHIP

The purpose of the study of economics is to help society decide how to create, distribute, and consume wealth. Every human activity has an economic dimension. Every time you wonder if there will be enough money to pay the rent or the mortgage, question the increase of food prices or decide to buy certain products, you are acting as an economic decision-maker.

Most people want to know more about the economy. Knowing some economics is essential to understanding what is going on in your life. Economics is not always easy to figure out and many adults and young people feel that understanding the economy is difficult.

As an individual it is important to be able to evaluate the impact of the economy on your life. As a business owner, it is important to understand economic terms and how economic changes affect your business. You don't have to be a professional economist, but you should be able to evaluate the impact of economic changes and the effects in your town, state, region, and nation. Furthermore, you should also have some idea of the impact of changing economies in other countries in the world.

Consider the importance of customers for a business. The state of the economy will have an impact on how much money customers will spend and what they will buy. This is just one example of the impact of the economy on your business.

Individuals also have a role in shaping the economy. Entrepreneurs provide an example of how individual activities can create jobs, new products and services to improve the economy. As individuals become informed they are better able to participate in shaping the economy. Much of understanding economics is to learn to "speak the language".

OVERVIEW OF THE LANGUAGE

The market for any product or service is composed of a number of consumers. These consumers are people or organizations that are willing to buy your product and/or service. Business organizations sell their own products or service, but they are also major consumers of other businesses. For example, if you are selling trucks, for example, you may target business owners as your market for the trucks. Most of your marketing activities will be focused on those types of businesses that use trucks in their operations. And most of your consumers in your market niche will be those business owners.

The price you charge for your products and services will depend on a number of factors. First you need to be sure to be able to cover the costs of providing those items to consumers. Some ot these costs are fixed and do not change no matter how many items you sell. These items include rent, insurance, a truck for deliveries, and the owner's salary. Other costs are variable, that is the number you must buy, adding to your costs, vary with the number of items you produce or sell. These items might include packaging materials, production workers' salaries, and shipping charges.

When considering the potential success of your business you must think of the law of supply and demand. This means the number of items like yours that are available to the market (supply) and the number of consumers who are in the market for this product (demand).

When the supply is scarce and there is a great need for this product or service in this particular market, you say that the demand is higher than the supply. When this is true, those who already produce this product can charge a high price for it. People will pay a lot for it if they really want it. It can be said that the demand is high.

Under these circumstances entrepreneurs often see an opportunity to introduce a new product that fills this same need for the consumer. Or they may merely find a way to increase the supply of the same product or service. In any event, now they have increased the supply of the product for the consumers. The suppliers now find that they cannot charge such high prices because there are more competitors for the consumer's money. In this case the supply gets higher and the price gets lower.

When supply gets too high for the demand, business owners drop prices in order to attract consumers. Businesses work hard to make enough sales to cover their costs and then make a profit. And some companies may even be forced to go out of business if consumers do not buy from them at a price that will cover their costs and also make a profit..

Businesses also must try to keep their costs as low as possible in order to make a profit. One of the highest costs of providing a product or service is the cost of workers. Human capital is the economic term for tho people that produce a product or service. An increase in the amount of work produced by the workers without an increase in pay leads to an increase in productivity for the business. The resulting high productivity keeps the costs per item low and helps increase profits for the company.

Let's Speak "Economics"

SOURCE: Consortium for Entrepreneurship Education, Columbus, OH.)

The author of this article is Asst. Professor, Pioneer Institute of Professional Studies, Indore