How Can an Understanding of Micro- And Macro- Economic Help Business Essay

How Can an Understanding of Micro- And Macro- Economic Help Business Deal with Their Market Situation and Their External Environment - Essay Example This paper illustrates that among micro-economic theory, one of the most important concepts is supply and demand analysis that is related to analyzing the supply and demand graph to measure the shift of the graph. It is necessary to explain these concepts before describing their importance for businesses. Supply and demand analysis of a business implies looking at the two variables of supply and demand. Demand can be defined as a phenomenon in which consumers agree on a certain amount of goods to purchase at a particular price. Therefore, demand is determined by various factors among which price of goods are an important factor as a law of demand states that high price of goods cause consumers to demand less and vice versa. However, supply is the quantity of goods that the manufacturers are agreed on selling at a certain price. According to a law of supply, the high price enables manufacturers to sell more whereas low price makes them manufacture less quantity of goods. Thus the supp ly and demand determine the businesses operations and helps them make important decisions about their selling of products. The supply and demand have a close relationship with concepts of equilibrium and elasticity. Equilibrium can be defined as the condition in which both consumers and manufacturers agree on a certain price on which goods would be sold or purchased. However, the concept of elasticity implies the responsiveness of consumers and manufacturers toward the change in some variable. For instance, the change in the price of a good affects the consumers and firms to lead them to make a decision. There are numerous factors that are related to the concept of elasticity such as a price of a good, income of consumer or cross-elasticity of supply and demand.