Macro and Microeconomics

Macro and Microeconomics

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Macro and Macro Economics

Decision making is an imperative element of any successful business. Managers are aware of the need to do a careful calculation before embarking on any project that may have long term consequences. Evidently, it is the desire of every proprietor to do well in business and even be a preferred choice among the consumers. There are micro economic and macroeconomic factors that affect a business and the kind of decisions that managers make (Lewis, 2013,p.38. Microeconomic factors include the individual units of an economy like households, individual customers and businesses. Macroeconomic factors entail the aggregate factors of production like demand and supply, inflation, taxation and even government policies. Every manager must therefore have the right tools to deal with any impending issues and thus come up successful.

Macroeconomic Factors

Inflation

Inflation describes a situation where the prices of commodities consistently shoot up ( Reis & Farole,2012,p.65). In that scenario, there never seems to be sufficient money to make any purchases either for the business or for individual customers. Usually, inflation results from having very strict monetary policy and in some cases when the value of the currency depreciates. Depreciation of a currency in this case means that the business owners would need more of their local currency to exchange with the dollar which is usually an accepted universal currency and hence used in many if not all transactions. The managers should be prepared to deal with inflation by adjusting their prices accordingly so that they may not end up losing on the customers and at the same time manage to make their profits (Reis & Farole,2012,p.87) .

Graph showing how inflation impacts an economy

Interest Rates

The rate of lending in a country affects how business is conducted. The interest rate is the rate at which the central bank of an individual country sets as the base lending rate to the commercial banks. Whenever the central bank raises their interest rates, it becomes expensive for the commercial banks to pay up the loan and in effect pass on the burden to any debtors ( Coles& Mortensen, 2016,p.349). Most investors rely on loans to make major investments and therefore when the interest rate has skyrocketed; it becomes almost impossible to make the investments which many pull a country behind. A business man may therefore find themselves in a fix trying to pay up their loans that they had earlier on requested from the banks. It is important to note that higher interest rates also translates to low money supply because people would be less willing to use their savings in the midst of such a financial crisis. It is important for a business to build up capital so that they do not rely so much on banks for their funding. In this case, the managers could decide to sell their shares to the public or buy government bonds to finance their projects.

Unemployment

The level of employment in a country directly affects the business in that if there are more jobless people in the economy, less people would be in a financial position to purchase the company’s products. In the face of massive unemployment, the business owners should be price sensitive and hence ensure that their products are fairly priced so that they do not remain with dead stock. Unemployment also affects the kind of products people buy and in this case, businesses may discover that at this stage, most people prefer to buy necessity goods and would not prefer luxurious goods (Coles& Mortensen, 2016,p.348).In this regard, a new business venture should invest in a kind of business that will easily sell their products and not have high end products which most people will not buy.

Graph showing how the national income affects demand and the overall price of the products.

 

Microeconomics

Demand and Supply

It is important for a business to have equilibrium in the course of operation. Equilibrium describes a situation where there is a balance between the supply a business makes in the market and even the demand that most people make for the same goods. Usually, the demand of goods is affected by many factors which may include the gross domestic product of a country, the competitor goods, consumer tastes and preferences, seasons and even the age. The managers have the task of studying their market keenly and ensuring that they do not supply the products that would be easily rejected by the customers.

 

Demand and supply graph

 

Market Structure

The market structure describes the business under which the business is in operation. A perfect competitive market would in this case mean that there are many similar products in the market which are almost similarly priced. The level of competition in a perfect market is high and the business men are price takers and not price makers. On the other hand, in a monopolistic market, the business owners would seem to control the entire market seeing that there are many restrictions on entering the same market. In a monopolistic market, the firm is the price maker and the customers do not have a choice but to take the products at the stipulated price. In that regard, understanding the market structure is key to decision making because it translated to the price, the quality of the goods and even the quantity.

In conclusion, business men should do a proper market analysis before they embark on any investments. It is important to get to understand what the competition is doing and in that case figure out what gaps are there in the market and how one would therefore come in to fill the gaps. As earlier noted, the market structure also impacts on the decision making seeing that if one was in an oligopolistic market for example, he would have to be careful about the price changes because the rivals would follow suit and there would therefore not be any benefits in that.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reference List

REIS, J. G., & FAROLE, T. (2012). Trade competitiveness diagnostic toolkit. Washington, D.C., World Bank.

Coles, M.G. and Mortensen, D.T., 2016. Equilibrium Labor Turnover, Firm Growth, and Unemployment. Econometrica84(1), pp.347-363.

Lewis, D. (2013). DECISION MAKING IN COMPLEX SITUATIONS. Business Strategy Review, 24(4), pp.37-40.

 

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