How you can relate business with economics?

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Lorraine Caplan | College Teacher | (Level 1) Educator Emeritus

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There is a very strong connection between business and economics.  An economist must study business, and a business person must know economics. Let's look at some examples of that. 

Businesses are a large part of any economy. When an economist studies businesses, he or she is looking at what businesses produce, how much they produce, whether or not they are producing and selling efficiently, and how large an industry is.  This this is a part of the macroeconomic concept of supply-side economics.  Also examined are factors such as unemployment and the gross domestic product (GDP), which is all the goods and services produced in an economy. Businesses supply consumers, other businesses, and governments with products and services.  An economist cannot come to any conclusions about how efficient and effective an economy is unless the economist examines the activities of businesses. 

For a person in business, an understanding of economics is vital. If you need to hire many new employees, having an understanding of the employment market is necessary. If unemployment is high, you can get employees with lower wages and fewer benefits. If unemployment is low, you are going to have to offer more wages and better benefits. That is the law of supply and demand, a principle of economics.  If you need to buy some materials and they are scarce, you will have to pay more for them. That, too, is a function of the law of supply and demand.  If you are deciding whether or not to start a new business or expand an existing one, you need to know something about the economy.  Is it in a period of recession or a period of expansion? Those are determined with economics. 

Economics is a kind of "big picture" discipline, but it must study businesses as part of that big picture. For businesses, it may not be necessary to know every single thing about the big picture, but certainly, in order to make intelligent business decisions, it is necessary to have a firm grasp of economic principles and data.

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