Company Cash: What is the ‘Business Economy’?

Economics is a broad term. It covers an entire ecosystem of theory. Under the microscope, you see this diversity in full bloom; topics alike and unalike each other, often simultaneously. The ‘business economy’—known formally as business economics—is one such topic.

At first glance, it looks like something you’re familiar with. You know what business is and you know what the economy is. Put them together and you’re not so sure. What exactly is the business economy? Let’s explore this question in clear, concise terms. 

Business Economics: What is it?

When you apply economic concepts to decision-making in business, you get business economics. If you’re a business owner, you take these concepts and study the market, financial, environmental, and organisational issues your business faces. 

Say your business is roasting coffee. The business economy is when you apply those economic concepts to issues like the price and availability of the coffee beans you source, supply chain disruptions caused by adverse weather, or a rising consumer trend to choose coffee alternatives.  

The four most common types of business economics are:

1. Macroeconomics

Macroeconomics focuses on the economy as a whole. Think growth, inflation, and employment. 

1. Microeconomics

Microeconomics focuses on the behaviour and operations of firms and industries within a particular market. 

1. Managerial economics

Managerial economics concerns the decision-making within an individual firm. Think pricing, production, and risk management. 

1. International economics

This type focuses on how countries economically interact with each other and the impact this has on global markets. 

Business economics vs traditional economics: the differences

The main difference is scope. Let’s return to our ecosystem analogy. 

Traditional economics looks at a nation’s entire economy. It analyses the five sectors of any economy: the primary sector (agriculture), the secondary sector (manufacturing), the tertiary sector (services), the quaternary sector (knowledge), and the quinary sector (often a combination of tertiary and quaternary sectors). 

Traditional economics aims to forecast long-term market trends and shape economic and political policy to adequately address these trends. 

With business economics, you narrow the scope. What concerns you now is how your business operates internally and externally in the market, along with the factors that directly and indirectly influence its growth and progress. 

For your coffee roasting business, business economics can help you accurately understand the effects a new tariff on imported coffee beans has on your business. It allows you to analyse your competitors and the wider market. If its application leads to you discovering a competitor’s superior roasting machine, then its application is worth the time and effort.  

Core concepts within business economics

Properly understanding business economics demands you to grasp its core concepts. An online MBA is a brilliant way to gain expertise in this field, as it covers the theory and application of business economics in greater depth.  

Supply and demand theory

The price of your coffee beans. The availability of your coffee beans. The fluctuating demand from local consumers. These issues are better understood when you understand the symbiotic relationship between supply and demand. 

Cost analysis

As a business owner, if you don’t analyse every cost, direct and indirect, associated with your business, you run the risk of being blindsided by unknown costs. Cost analysis includes activity-based costing, marginal costing, and cost-volume-profit analysis. 

Market structures and pricing strategies

No market is perfect. Business economics helps you navigate the market your business operates in; in turn, this influences your pricing tactics, such as cost-plus pricing and dynamic pricing. 

Government influence

Regulations, taxes, and subsidies; a government’s influence on your business is deep and significant. By understanding the interplay between government activity and business economics, your business can remain agile. 

The benefits of using business economics

Studying economics helps you better understand the economy; business economics helps you better understand how the economy affects your business. Simple as that. The more you understand the internal and external factors that affect your business, the more your business can thrive. 

Here are some proven benefits of implementing business economics practices in your business. 

Efficiency

Applying managerial economics to your business enables you to streamline and optimise operations. For example, identifying and installing a new roasting machine for your coffee business that halves production time is a step in the right direction. 

Profitability

The flipside to efficiency is profitability; it is rare for your business to achieve one and not the other. Along with improving internal operations, business economics can help determine ways to earn more profit through price and cost analysis. 

Adaptability

Markets shift, and governments change their minds; like death and taxes, their certainty is guaranteed in business. Implementing business economics allows your business to pivot and respond to these changes in ways beneficial to its operations. 

Market competitiveness 

Effective market and competitor analysis is critical with or without business economics. Its application allows you to predict market trends better and keep ahead of your competitors. In a market as saturated as coffee roasting, this edge can prevent your business from tipping over the edge. 

Scalability

By making your business more efficient, profitable, adaptable, and competitive through business economics, you can determine whether your business can scale at a sustainable rate. Proper application should prevent your coffee roasting business from growing too quickly. 

At its core, the business economy is a framework for keeping your business efficient, durable, and flexible. By investing in its theory and applying this theory practically to your operations, you give your business its best chance of long-term success.