Question

If you are weighing the options of starting your own business after graduation from GIMPA or seeking a job in the public service, explain how your knowledge of the following concepts will inform your decision to either start your own business or seek a job in the public service: a) Economic trade-offs and opportunity cost b) Deductive and inductive methods of economic analysis c) Economic Efficiency

Answer 1

a) Economic trade offs and opportunity cost

In economics, we refer to the sacrifice made in choosing one choice over the other. It's closely related to the opportunity cost which means the same. In this case, when I pass out from the college, I've got two options either to enter the job market or pursue entrepreneurship. The opportunity cost in the first case is the freedom, vast exchange of ideas, sense of achievement which are sacrificed when you take up a job. In the alternative, the opportunity cost are job security, regular payroll (ideal scenario)

Clearly the opportunity cost when you take up job is more. Hence that is less preferable. But I would suggest to pursue entrepreneurship after a couple of years spending in a job to gauge the corporate mentality.

b)

The deductive method is essentially a method of reasoning from few fundamental propositions, assuming those are true. On the other hand, inductive method involves collection of facts and efficiently drawing conclusions from them and ultimately testing these conclusions against other facts. A typical way to analyze this scenario is to apply inductive method to research on the success percentage in a start-up field you're willing to pursue, or the barriers to entry in the same. The market behavior and the consumer's perception regarding ideas similar to yours, etc formulate the inductive method.

The deductive method could be to reason out that these successful entrepreneurs are in the position they are because of so and so reasons. These might not be true entirely but assumed to be.

c)

Economic efficiency in simple terms is nothing but a point where one can't bring about any improvements in the market without negatively affecting at least one player in the market. Sounds familiar, ain't it? Yeah, pareto efficiency deals with the same thing.

In our case, assuming you're on a day job (consider this situation to be economically efficient) and suddenly the craze of start up builds and you're keen on starting your own company. But at this point of time, if you want to improve your scene in the start- up or wanna move forward in setting it up, you have to quit your job or take time of your 'me time'. This might cause inefficiency in your day job as well. After all we are humans! That's the reason you might find almost every entrepreneur has quit his/her day job to pursue their dreams.

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