Economics of Starting a Business

Market Research

Initially, starting a business requires the analysis of the existing marketplace. This includes examining industry trends and the potential for success among the current competition. Examining economic data, such as consumer spending patterns and household income, can provide important information relative to examining the potential of specific markets and industries. Agencies such as the Bureau of Economic Analysis and the U.S. Census Bureau represent a few of the options for gathering useful statistical information.

Businesses aim to maximize profit and so must understand how to allocate resources efficiently, how to analyze pricing strategies and how to examine production capabilities. When starting a business, this can include investing in new technology and equipment to help maximize production while minimizing costs. Minimizing costs can also involve leveraging business relationships in order to receive the best price on raw materials and supplies. Controlling labor costs represents another consideration when looking to maximize profit. Labor costs can include wages, benefits and training costs.

Successfully marketing and selling a product or service depends heavily on capitalizing on consumer demand. Consumer demand for a product or service can change due to a number of circumstances. One possible scenario includes a reduction in household income because of unemployment or a reduction in hours. With less money in their pocket, consumers may opt to forgo the purchase of services or products viewed as luxuries and instead focus on needs. Another possible scenario includes the decrease in the price of a similar product or service. This can lead to a decrease in demand for your specific product or service. Likewise, an increase in the price of a similar product or service can lead to an increase in demand for your product or service. Keeping a close eye on economic patterns that can affect demand, such as unemployment and consumer spending trends, can help identify the need for a reduction in price or shift in product or service offerings.

Both microeconomic and macroeconomic principles contribute to the functioning of businesses. Microeconomic principles focus on analyzing individual consumer behavior and making decisions concerning the allocation of resources, such as labor and raw materials. Macroeconomics focuses on the behavior of the entire economy. You should have a firm grasp on the various ways both microeconomics and macroeconomics can help foster the development and growth of a business.