Basic Concepts of Economics Simplified for Young Entrepreneurs Ready to Start a Business.
Most of us started our businesses because we were broke and we wanted a fast way to make money. Yes, it worked for me, I made some cool buck. After some time, I got bored and I wanted more.
Most persons start a business because they want to make money. After you have achieved that goal, what next?
Building a business is more than making money. How many persons will testify that your product or service was helpful?
Today, you will learn the core principles and strategies to start your next rated business.
What is economics and why is it important in business?
I love defined economics as the study of people’s behaviour to what they want, the availability of the resources to satisfied the want and the alternatives.
It’s okay if it sounds Latin. Let me explain in details what that means.
Our want is too many compared to the available resources needed to meet our wants. Or it is the ability to use the alternative resources to meet a more pressing need leaving the less important need.
Example: I want a camera. It will help me produce better videos for my online course and vlog. But, I need a new laptop, without it, I won’t be able to edit the videos or even manage the blog.
Basic Concepts of Economics
As an entrepreneur, it is very essential to understand the basic concepts of economics and have to them at your fingertips.
It will help you develop products/services that people want/need. You won’t create products because the idea looks/sounds sexy but the product should solve a real problem. The basic concepts of economics include;
This is an insatiable desire/need of a person to own a certain product or services that provide them satisfaction.
The basic needs of a person include; food, shelter and clothing.
While want is a desire to own a thing. Need is a necessity to own the thing.
Example: As a student, I’d love to have a car to aid my mobility on campus. But I need to rent an apartment so I won’t have to live in the car.
This is the limited supply of resources which satisfy unlimited wants. Scarcity is the inability of a person/persons to provide themselves with all the thing they want.
As a business owner, renting a shop or office space in the state capital can cost you N500,000 yearly but you only have N300,000. That means your availability resource is insufficient to provide your need #InsufficientFunds
Scale of Preference
Every day we are responsible for allocating scarce resource to our wants/needs. The scale of preference is the list of unsatisfied wants organized in their order of importance.
Example: Imagine my daily needs include food (N500), data (N1000) and Transportation fare to school (N200) and I have N1000
My scale of preference would be
Data – N1000
Food – N500
Transport – N200
That means I would prefer to buy data. Stay hungry and trek to school. What will your scale of preference be? Leave a comment below.
The scale of preference is important because it helps you rank your needs according to their necessity.
It optimizes our allocation of resources to meet our wants. We are to identify what is the most essential need among others. Also, it helps us to make rational decisions.
The scale of preference helps us to make rational decisions. What is a choice and why does it matter. Choice is the process of selecting one out of a list of alternatives. Our choice can be influenced by our availability of resource or need.
This is the satisfaction of wants at the detriment of another wants. Like I mentioned earlier. I’d prefer to buy data with my last buck and stay hungry. That means I meet my want at the detriment of a need.
The importance of opportunity cost is;
- It helps us to make the right decision and to divide the available resource to meet a pressing need.
- To a business, it can help them to make rational decisions that can enhance the growth of the business.
- It helps in the preparation of the budget since it involves the efficient allocation of available resources.