A New Perspective
Chapter 3: Relevance to Business Management of Microeconomics and Microeconomic Policy
INTRODUCTION Knowledge of microeconomics and of microeconomic policy develops the capabilities of business managers, and can help them improve the performance of their businesses. It provides a basis for understanding the economic implications of production decisions within a business, and is a means for assessing the economic implications for the ﬁrm of changing environments external to the ﬁrm, such as alterations in the demand for commodities and variations in government microeconomic policy. Figure 3.1 provides a simple schematic representation of how knowledge of microeconomics and microeconomic policy can assist managerial decision-making in business. However, it needs to be recognized that there are diﬀerent approaches to microeconomic modelling. They diﬀer in the factors that they take into account in modelling the economic operations of businesses and the economy. They often vary in their degree of abstraction from reality and in the range of inﬂuences that they deem to be important in explaining, analysing or predicting economic phenomena. They provide diﬀerent ways for looking at the actual complex world. Each provides a partial picture of the Managerial decision-making in business Inputs from microeconomics Improved economic efficiency of the internal operation of the firm, e.g. application of production economics Improved adjustment of firms to external economic changes such as variations in prices, competition, demand. Application of supply and demand analysis Changes in government microeconomic policy such as variation in competition policy, taxes and subsidies on commodities Figure 3.1 A schematic representation of how a knowledge of microeconomics can assist...
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