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What Is the Relationship between Microeconomics and Business?

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  • Written By: Esther Ejim
  • Edited By: Kaci Lane Hindman
  • Last Modified Date: 17 November 2016
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Microeconomics and business are related because microeconomics studies the factors that affect individual businesses and organizations. This is unlike macroeconomics, which studies the factors that affect the entire economy of a region or even the global economy. Examples of microeconomic factors that relate to individual businesses include the behavior of consumers, the demand and supply, the business environment and the competition.

In order to better understand the relationship between microeconomics and business, it helps to consider a potential investor trying to go into the coffee shop business. The investor will have to apply microeconomics principles as part of an assessment of the viability of the proposed business. One of the first aspects related to microeconomics and business that the investor must study is the market. He or she would have to consider if there is a market for such a business in order to figure out how best to fulfill any identified need.

The second factor related to microeconomics and business that the investor would have to take into consideration is the environment. The environment includes factors like the location and the government policies in place, which may affect the business in a positive or negative way. Such governmental policies could include matters like high taxes or reduced taxes. If the investor plans to import special coffee beans from another country for his or her own brand of coffee, factors like trade bans, import quotas and import duties must be considered.

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Location is related to microeconomics and business in the sense that the investor would have to look for an ideal location for the coffee shop. The criterion for the ideal location of a business depends on the needs the business is trying to fill. In the case of the coffee shop, the ideal location would have to be in a place near the target consumers. Common consumers for coffee shops include people like workers and college students. Other people include those who may have been shopping and just need a place to relax, or people in bookstores who are willing to relax with a cup of coffee as they catch up on their work. A coffee shop that is located in a business district will certainly have more traffic than one that is located in a quiet residential area.

Competition is another factor related to microeconomics and business. The investor trying to start a coffee shop would need to conduct a survey to find out the number of coffee shops already operating at that location. Too much competition will reduce the profit margin, and the investor might have to look for another location. Another reason why the competition is important is due to the fact that knowing the competition’s business strategy will allow the investor to formulate an effective marketing strategy.

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