Fundamentals Of Economics And Types Of Markets
Businesses can be defined a number of different ways. Several of these definitions can be used to help understand something about the business from a general perspective. We tend to pay attention to where the business is located (domestic and/or international), the type(s) of market(s) it is involved with, and in most cases, the type of government and degree of control it is involved in with the business. The simplest definitions are for local and domestic businesses because we are accustom to them and understand them better. But for many businesses it is impractical to limit themselves to only domestic customers. Owners demand the most profit out of business as possible, which means for some businesses, to operate globally. Sometimes this requires setting up in foreign countries that have different ways of treating the business and how it operates. For example, the business practices you use in the United States may be very different than the practices you use in South Korea. These differences may be driven by different perspectives of the market, the fluxation in local currency, differences in governmental regulations and involvement, differences in taxation, different means of transportation, etc.
All these factors play a role in the operation, and definition, of a business. The module this week offers a broad look into some of the important fundamental issues and concepts behind any business. There are layers to any business that must be identified and considered, but internally and externally, to get a better idea of issues facing that business.
Think back over the material you read in the module and viewed in the PowerPoint slides for the week to help you answer the following reflection question.
QUESTION: Comparing Free Markets to other competitive markets, explain what you feel, in your opinion, is an important factor that has the greatest impact on a market. Give examples, if you can, to support your position.
Sample Solution
While free markets, controlled economies, and other systems all influence how businesses operate, I believe the single most important factor shaping a market is the customer. Their needs, wants, and purchasing power ultimately dictate the direction and success of businesses within that market.
Here's why customers hold such power:
- Demand Drives Supply: Businesses exist to fulfill customer needs. Customers express their desires through demand, and businesses compete to meet that demand. This competition drives innovation, product development, and pricing strategies. For instance, the rising demand for eco-friendly products has pushed businesses to develop sustainable alternatives.
- Voting with Wallets: Customers act as voters in a market economy. They "vote" with their wallets, choosing to spend their money on products and services that align with their preferences. Businesses that fail to adapt to customer desires risk losing market share and potentially failing.
Full Answer Section
- Power of Brand Loyalty:Customers can become loyal to brands that consistently meet their expectations and build trust. This loyalty translates to repeat business and positive word-of-mouth marketing, further influencing market dynamics. Companies like Apple and Amazon have cultivated strong customer loyalty through exceptional service and user-centric product design.
- Free Market:In a free market, customer choices directly influence the success of businesses. Companies with products or services that resonate most with customers will thrive. For example, the dominance of ride-sharing apps like Uber and Lyft is a testament to how customers embraced a new transportation option that addressed their needs for convenience and affordability.
- Controlled Economy:Even in economies with government intervention, customer preferences still play a role. Governments may prioritize certain industries or products, but businesses must still find ways to make those offerings appealing to consumers. For example, electric car manufacturers may receive government subsidies, but ultimately, customer adoption depends on factors like vehicle range, charging infrastructure, and overall consumer interest in electric vehicles.