When you ignore the natural laws of economics your business will fail
I’m experimenting with a different way of teaching business, or at least different than the way I was taught. I was taught business using a very practical approach, where I learned about how to observe markets and how to run a business. There were a few natural laws thrown in but I would like to approach it from a scientific “law” based approach.
Photo by Modo Media
This is a work in progress along with my students at the University of Northwestern Ohio. - J. Brogee
When prices are lower, demand rises because more people want to buy the product.
When prices are higher, demand declines because less people want to buy the product.
Government regulations increase the price of production due to the cost of compliance and other restrictions such as minimum wage.
Without government regulations, industries will “race to the bottom,” finding the lowest cost of production possible. Businesses will do whatever they can legally do to reduce the price. Only government regulations will create boundaries that businesses will obey.
The only industries that don’t “race to the bottom” are those that can differentiate their design or marketing to customers in order that those customers will pay a premium price. As time passes and as designs are copied, the ability for companies to differentiate is reduced.
Businesses will attempt to push externalities to communities when legally possible. Externalities are costs of doing business that are not captured in the price of the product, such as when businesses take advantage of roads, water sources, or dumping land in the community that they do not pay for themselves.
People will work to make products or provide services and thus fulfill demand when there is opportunity for profit that they can keep for themselves. When the opportunity for profit is reduced, the desire to engage in the marketplace as a supplier is reduced. “Invisible Hand”
When countries can trade with no restrictions, production is increased. Some industries are lost to countries as they move to a location that can produce the goods more cheaply. “comparative advantage”
Externalities - Pigou, Arthur C. (1920). The Economics of Welfare. MacMillan: London.
Invisible hand - Smith, Adam. (1776.) Wealth of Nations.
