Very important article for businesses………… read on…….
Today let’s touch a bit on some economics. The economic environment is one
critical variable found in the macro-environment. This is a variable to watch
out for with very attentive eyes. Now, just as an introduction to some of us
that may not have had the opportunity to attend an economics lesson, I will
give some little, rudimentary elements around it. Economics is a subject that
focuses on how the scare resources can be allocated in an attempt to satisfy
unlimited human wants and needs. Economics has two broad categories;
micro-economics and macro-economics. The word micro comes from the Greek word micros which means small in Greek. So micro-economics looks at ways through which small individual units like households, individuals and firms make resource allocation decisions.
Micro-economics forms the basis for macro-economics. You always start with the theory of demand and theory of supply. It has been studied repeatedly that consumers will always demand more of a product at a lower price than at a higher price for normal goods. Normal goods (like sugar) are different from goods of ostentation like expensive fancy cars whose demand goes up as their prices go up. These have what economists term an exclusive demand curve. Macro is a term that comes from the word macros, a Greek term for large. Macro-economic looks at the way the economy at large is managed. The performance of aggregates. Key macro-economic areas are; inflation, unemployment, output growth.
Back to economic systems. An economic system is a method of governance which determines what to produce, for whom to produce, when to produce and in what quantities to produce. Economic systems are an interesting phenomenon and these fundamentally come down to three main ones:
- FREE MARKET ECONOMY
-This is an economic system where more of the private players control economic resources.
Resources are allocated by a natural mechanism of demand and supply.
This is also called the “invisible hand” which controls things in this type of economic system.
- COMMAND ECONOMY
This is an economic system where much of the resources are controlled by the government and they are the ones with the say as to what to produce for whom etc.
- MIXED ECONOMY
This is an economy that has elements of both government control and private players also running things on one end.
A country can be a mixed economy but with an orientation towards either a command or free market.
Any serious strategist should know about market structures and economic systems.