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CHAPTER 2
ECONOMICS IN BUSINESS
INTRODUCTION
Economics is the science that studies how scarce resources are managed to meet human needs.
In business, understanding economics is very important because it directly influences strategic
decision making. In this lecture, we will explain how fundamental economic concepts play a
role in business management.
Understanding economics in business is key to making smart decisions, managing risk, and
achieving business goals. In every aspect of business, economic concepts play an important role
in forming strategies and efficient decision making.
PRINCIPLES OF ECONOMICS
Economic principles are the basic concepts that form the basis for the study of economics.
Understanding these principles is important in making economic decisions, both at the
individual level and at the corporate or government level. several main principles of economics
, namely:
1.
The Consideration of People Principle states that individuals and companies seek to
maximize their satisfaction. This means that people strive to get maximum benefit from the
limited resources they have. This principle assumes that humans act as rational thinkers
who always look for ways to maximize their profits or satisfaction in making decisions.
Example: A consumer who has limited money will try to buy a product or service that
provides the best value for his money. For example, if a student has limited pocket money,
he may choose to buy cheap food with high nutritional value to maximize his satisfaction
and well-being.
2. The Limited Resources Principle refers to the fact that economic resources such as labor,
capital, and time are limited. Because these resources are limited, there must be an efficient
allocation in order to achieve the desired economic goals. Businesses and individuals must
make wise decisions about how to allocate their limited resources in order to achieve the
best results.
Example: A company with a limited budget must decide whether to invest
resources in research and development of new products or expand existing distribution
channels. This decision must take into account the available resources and the company's
long-term goals.
3.
Alternative Cost Principle or Opportunity Cost is the value of the alternative that is
overlooked when a decision is made. When a person or entity makes a choice, they must
consider what they are willing to sacrifice by choosing one course of action over another.
This concept reminds us that in making economic decisions, it is not only the visible costs
that must be considered, but also the costs of missed opportunities.
Example: An individual
who decides to work extra on the weekend may be sacrificing time that could be spent with
family or pursuing other hobbies. Alternative costs in this case are time lost to other
activities that may have greater emotional or social value.
These economic principles provide an important framework for understanding how people and
organizations make economic decisions. Understanding these principles helps individuals and
companies make better decisions and manage their resources efficiently.
MARKET AND COMPETITION
Studying markets and competition is key to understanding how the economy works and how
companies operate within it. This knowledge helps individuals and organizations to make wise
decisions, develop effective business strategies, and contribute to overall economic growth.
The concepts of market and competition are key elements in the study of economics. An
understanding of how markets work and how competition influences economic dynamics is
essential.
