Microeconomics Behind Business Development

Microeconomy Behind Business

Microeconomics Behind Business Development

Microeconomics Behind Business Development

Creating a new business is a decision that is based on some of the key elements of the microeconomy. An interesting fact is that many people even without knowing all the economic terminology manage to succeed in new business plans. The key elements that underline the microeconomy and understanding them can make future business, or any kind of business a lot easier. What microeconomy encourages in society is not something that only economists learn at school but something we all live and do and see every day on a deep unconscious level.

There are several important elements in the microeconomic system to understand in order to make one business successful and not a failure.

Since microeconomics focuses on the analysis and satisfaction of individual customers' needs it is based on the following factors which are at the same time also tips for anyone entering a new business.

  1. Labor Decisions
  2. Productivity
  3. Kinds of goods and services offered
  4. Supply and Demand
  5. Economic Utility and Pricing

Labor Decisions

For any company to function it needs working power which in return is functioning on the principle of wages. A company needs to make smart calculations between the hours of work and wages it gives to its workers, which is a topic to be explored itself broader and deeper.

Both sides want fair trade when it comes to work, performance, and final product.


By productivity, one can consider a product, service, or any kind of agreed good. What stands between the product and producer is machinery or call it technology or simply put an instrument that is used to maintain and satisfy the desired outcome. It counts for the amount of output produced per the unit of input. Meaning, how much is produced and how much material is used for the production of the same. In order to reach bigger output or productivity, the aim in the economy, in general, is to use the same number of input unity and create a bigger and bigger amount of output. That is how economic growth is related to productivity.

Kinds of Goods and Services Offered

Kinds of goods or services offered greatly depend on the market analysis and customer needs and demands. Individual company's business implies analyzing and listening to the market's voice.

Types of goods on the market are classified into four types:

  1. Private goods
  2. Public goods
  3. Common resources
  4. Club goods

Supply and Demand

When it comes to supply and demand they come together and function interchangeably. Supply in microeconomics stands for a particular amount of goods, services, or any other kind of desired product that is at a particular time available to consumers on the market. Demand on the other hand stands for the amount of desire and interest on the market for the particular product.

Economic Utility and Pricing

'Utility' is roughly synonymous with words of happiness and satisfaction or pleasure. Purchasing things we desire we take part in consumer type of utility. (Bentham (1823)). Satisfaction or happiness on the market is visible through demands on supplies and needs of certain products. The utility gives us a picture of general satisfaction by product. It is based utterly on the needs of customers. Based on the usefulness and need for particular good, changes the need and supply of certain good, service, or product as such.

Economic Model of Behavior Within the Scope of Utility

Two important types of consumer utility-based behavior on the market can be described as follows:

  1. Individual utility
  2. Cardinal utility

Individual Utility

It is important to put an emphasis on several important types of behaviors as observed within the utility concept. In one case we talk about a consumer profile whose utility is maximized and in attempts to maximize utilities even more one encounters sort of economic obstacles that fit under the description of typical consumption type of behavior.

This type of behavior attempts to maximize utilities and ends up spending more and more in order to satisfy desires that arise. In other words, this is a situation where one spends all income on consumption goods.

Cardinal Utility

With constant relation between price and goods, cardinal utility analysis and consumption stands for the economic idea that economic wellbeing can be directly measured by the satisfaction of consumers within the time and place of goods or services being offered. In simple words, cardinal utility is in some way a bit opposite from the individual utility whereas cardinal stands for the price a consumer is willing to pay not only spending all income on consumption goods like it is the case in the Individual Utility explained above.


BOOK: DE ECONOMIST 133, - ARIE KAPTEYN, Tilburg University ... https://pure.uvt.nl/ws/portalfiles/portal/936137/utilitya.pdf
BOOK: An Introduction to the Principles of Morals and Legislation - Jeremy Bentham, 3 ... Publisher Oxford: Clarendon Press

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