Economists often state Economics would help people make better choices. Why? Economics try to explain how the markets work and how the resources are used, this is very useful for people from other disciplines because it helps them to understand the world. I study Finance and I can say that if it was not for Economics I would not be able to understand where does Speculation come from. And so if Economics help you to understand the world, Economics are a tool when we talk about start-ups and entrepreneurship.
Scarcity is a term related to the Economics definition. There is an “Economics mantra” that says ‘people make choices with scarce resources and there is interaction when those choices are made’. Doesn’t that apply to entrepreneurs too? When you are starting you usually don’t have a lot of resources and you need to interact with others, to learn, to grow or just because you don’t want to feel alone in the process. Interactions and scarce resources are for sure something entrepreneurs know about! But what if there were some simple tips that could help you cope with scarcity, interactions and new projects?
Let me share and explain four principles of Economics that will help you understand the world as an entrepreneur! When you study Economics they will usually give you these principles and others, take into account that the principles I will be mentioning are part of the book Principles of Microeconomics by N. Gregory Mankiw.
1. Opportunity Cost
It is what you usually give to get something else, in other words is the price of a choice. For example when you decide to watch TV instead of studying, you are giving up an hour of study to watch TV for an hour, the time you don’t use to study is the Opportunity Cost of watching TV; I know! The cost might not seem obvious, however when you have an exam, you can see what was the real price. This can be seen as an entrepreneur when you stop studying in order to develop some ideas or work in a start-up. And this is something that should be taken into account: If you think you are going to be successful and you want to leave school to continue with your Project, you need to analyze the Opportunity Cost and see if in the long term the price you will be paying by leaving school will be worth your idea/project. You should also remember that ‘we must trade off one thing for another because resources are limited’. Time is limited!
2. People respond to incentives
Is easy to understand that people respond to incentives, but how is this useful for entrepreneurs? The work environment and the way each person’s work is recognized and rewarded will influence the performance of your employees or you partner (if you have one). When you are starting a business the design of the work environment is important!
3. Governments can sometimes improve market outcomes
This principle goes towards the fact that sometimes governments intervene in markets. Remember this and if it is necessary make a little research! In some countries governments give assistance to young entrepreneurs or SMEs (Small and medium-sized enterprises) in order for the Country’s Economy to grow, moreover there are loans for entrepreneurs; you could apply to get one!
4. Trade can make everyone better off
As an entrepreneur you need to negotiate and trade! Don’t forget trade is made to improve everyone’s situation when you are in the middle of a negotiation. And also don’t forget that advertising is now easier with the cooperation between blogs, Facebook pages, Instagram… Social Media! So you can actually make trade to advertise your project with other entrepreneurs!
And… don’t forget to enjoy! That is not a Principle of Economics that is my own tip!
Do you have any tips for entrepreneurs from the perspective of what you are studying?
Want to know more about me? Read this article! -> What comes to my mind when I think about MUN:Planet’s Fully Funded Internship? / MunPlanet
Want to know more about entrepreneurship? Read this one! -> 6 Things Young People Must Know About Entrepreneurship / MunPlanet