What You Need to Know about Economics for Decision-Making

One of the most critical courses in the MBA General online program at the USC Aiken is Economics for Decision-Making. To prepare you for a future in business leadership, this course covers theoretical and applied economics as well as the application of microeconomic and macroeconomic concepts and marginal analysis to the decision-making process.

Students often rate this their most fascinating course, in part because it links macroeconomic and microeconomic concepts learned in undergraduate courses to applied business management practices. Distilling complex concepts into business insights and, ultimately, into an action plan is tough work. Most business leaders refine their decision-making over time, but with heavy competition, graduates must be prepared to start their managerial careers as strong decision-makers.

Macroeconomic Decisions

Business leaders, especially those in the C-suite, must understand the impact of changing consumer trends and behaviors, employment levels, interest rates, banking and financial trends, and inflation. They must understand the legal factors affecting business decisions, including state and federal regulations regarding employment practices, trade practices, accounting, marketing and protection of intellectual property.

Two examples of macroeconomic factors that affect business decision-making:

Employment: The economy is cyclical. In prosperous times, companies hire more to keep up with high consumer demand. In a down cycle, companies hire fewer new employees and may conduct layoffs. For well-capitalized businesses, strategic advantages accrue from moving against these trends. In periods of prosperity, they can invest in technologies that yield more productivity from fewer employees. During a downturn, they can capitalize on the availability of talent and acquire sharp employees for less money.

Inflation: Inflation is the rising tide of costs in an economy. It affects both consumers and businesses. Most businesses raise prices in accordance with inflation in order to maintain their profits. Well-capitalized companies have the luxury of deciding to use inflationary periods to gain market share by not raising prices as much as their competitors.

Microeconomic Decisions

This form of business decision-making is based on the principle that people make rational choices with the information they have. But these decisions are rarely easy; all decisions come with opportunity costs or trade-offs. Something must be given up in order to do something else, and that something could be a resource, a worker, time or money. Opportunity cost represents the sum of what is given up to make a decision. Such a challenge is often called making decisions at the margin. In addition, a decision may be effective up to a certain time or a certain level of expenditure. One must understand when to pull the plug on an activity and transition to another.

Two examples of microeconomic factors that affect business decision-making:

Production and inventory: What are the optimal levels of manufacturing production and inventory at any given time? This decision comes down to an understanding of marginal benefit, or the point at which revenues exceed the costs of manufacturing and keeping inventory. Economic factors are forever changing, so decisions related to production and inventory are often made on a weekly or even daily basis.

Advertising and marketing budgets: Marketing managers keep up with the changing costs of different marketing and advertising vehicles. The calculations that determine potential ROI from television advertising vs. paid search ads on Google change based on cost and shifting consumer behaviors. In addition, managers must decide whether to use these vehicles in order to compete where their competitors are, or to engage audiences where their competitors are not. Many companies built their brands by focusing on social media rather than traditional advertising outlets because it presented an opportunity to be heard where competitive voices were not interfering.

To be a confident and successful business leader, training in economic decision-making is one of the most important factors to consider as you select an MBA program. Just ponder the opportunity cost of not doing so.

Learn more about the University of South Carolina Aiken’s online MBA program.


AZCentral: Economic Factors Affecting Businesses

AZCentral: Examples of a Microeconomic Decision

CEOPedia Management Online: Economic Factors Affecting Business

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