Basics of Business
Ecomomics: Demand and Supply
Consumers are consistently evaluating
their choices to maximize the value to themselves.
Consumers determine the value of a product by analyzing it relative to these
two questions:
What is the perceived benefit of a
particular product in time for the consumer?
What is the estimated overall product cost
including the perceived shopping cost to obtain the product?
Each consumer places different values on
these questions based on their own unique wants. Consumers actively weigh the benefit
obtained from purchasing the product in time with the cost
of obtaining the product. The product with the
highest value will be the option the consumer purchases.
The level of demand depends on the amount
of customer value the product provides.
Producers are constantly trying to
maximize profits. Profits will attract the entry of new competitors into a market
and supply will increase.
Producers strive to gain an edge which
differentiates them from competitors which allows them to
make more profits. Producer can differentiate by
performing different activities or perform similar
activities in different ways.
The competitiveness of the capitalist
system make it difficult for producers to make extraordinary
profits over long periods of time.
The level of supply depends on the amount
of profit the production of the product provides.
Example of Concept
During the first stage of a
business' life, the business starts as a single product
company in a single market. If the business is found
to be successful, competitors are going to try to imitate
the company to share in its profits. To fight back the
business will strive to gain sustainable differentiation
from their competition through its brand, scale, and
technology to help them earn profits in excess of their
competition. The challenge for
the business is to continue to make the right investments in
its brand, scale, and technology to keep it ahead of its
competition.
For a further explanation of Business
Economics read:
Contents
- 1. Business Economics: Overview
2. Analysis of Consumer Demand
3. Analysis of Production Costs
4. Analysis of the Firm's Supply Decisions
5. Analysis of Price Determination
6. Analysis of Perfectly Competitive Markets
7. Analysis of Monopoly Markets
8. Analysis of Monopolistically Competitive Markets
9. Analysis of Oligopoly Markets
10. Managerial Objectives and the Firm
11. Competition and Competitive Strategy
12. Understanding Pricing Strategies
13. Investment Appraisal
14. Understanding the Labour Market
15. Government and Business
16. Business and Economic Forecasting
17. Business Economics - A Checklist for Managers