Question

In your view, how could an understanding of micro and macro economics enhance the operations of a business?

Answer 1

Microeconomics

It analyzes how individuals or one single factor makes decisions in an economy. Here the economic problem of an only an individual or a factor is studied and everything is assumed as equal or constant.

For example, demand and supply of a certain company or a product or individual income.

Macroeconomics

It analyzes how the economy as a whole makes decisions or studies of the economic problem of the whole economy.

For example, aggregate demand and aggregate supply in an economy, GDP of the economy, or inflation.

Now coming back to the question.

Studying both the above types is very important for the business.

• Operations: the business is operating in the environment which is affected by both the micro as well as macroeconomics. So it is directly or indirectly affected by the changes occurring in them.
• Shaping the decisions: Businesses need to carefully analyze them before making any decisions. One wrong decision can affect the very survivability of the business.
• Paying attention to trends: The environment is always changing and so are the customer's needs and trends. If the business didn't pay these activities then they might end up losing customers, sales, and their profits.
• Price setting: A business set prices after considering many things such as cost of production, inflation rate, needs of the people, pricing policy of the competitors, rules by the government, etc.
• Interest rates: This will affect both the business and customer's decisions. Customer's usually increase their buying habit when there is low-interest rates by using the loan for the purchases. Businesses can use this opportunity to expand more.
• unemployment rate: this starts from the lower spending of the customers on the goods and services. As the firms are having a decrease in sales and less profit, they will start cutting on their production and lay-off workers. This will increase the unemployment rate.