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    6 Important Economic Concepts You Should Know

    • 17 Jan 2017
    HBS Online Author Staff
    tag
    • Business Essentials
    • CORe
    • Economics for Managers

    Economics can sometimes feel daunting, especially if you don’t have a background in the field. While economics can be a complex subject at more advanced levels, at its heart are key foundational concepts. Taking the time to build your understanding of these concepts can enable you to learn more advanced ideas and theories down the line.

    Whether you’re looking to expand your economic knowledge for career advancement or general professional growth, here are six key economic concepts you should know.


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    6 Important Economic Concepts

    1. Supply and Demand

    The relationship between supply and demand sits at the heart of most economic theory, for a simple reason: They are inextricably linked. The law of supply and demand can be explained as follows:

    When supply of a good or service exceeds its demand, prices will fall until an equilibrium is reached. Conversely, when demand for a good or service exceeds supply, prices will rise. This second point is referred to in economics as scarcity.

    Though relatively simple in concept, the relationship between supply and demand is a crucial one to understand.

    2. Market Demand

    In order to effectively develop, market, and sell your product or services, you must have a firm understanding of the market demand that exists for them. This is particularly important in the earliest stages of launching your business or product, as you decide whether or not it’s likely you’ll achieve a positive return on investment (ROI) for your endeavor.

    How you go about gauging market demand will depend on a number of factors, including your budget, the type of product or service you’re selling, and how disruptive your product is to the established market. That being said, some options you might consider include:

    • Conducting customer or user interviews
    • Running polls or surveys of potential customers
    • Leveraging third-party data
    • Analyzing your competitors’ products or services

    3. Willingness to Pay

    Willingness to pay (WTP) is the maximum price a customer is willing to pay for a product or service. These prices can also be a part of a scale or range of prices, depending on the differences in the customer population. Because your customers’ willingness to pay will impact everything from the features you include in your product or service to the price you charge, it’s crucial that you have a firm understanding of how it works.

    It’s also important to understand that willingness to pay can vary significantly from individual to individual based on certain differences in your customer population, which are usually broken out into two key buckets: Extrinsic and intrinsic.

    Extrinsic differences are demographic factors, and are sometimes observable. Examples of extrinsic differences include age, gender, race, income, and education level.

    Intrinsic differences are factors that you would find out by asking specific questions and not something that you are likely to be able to identify just by observing someone. This might include an individual's risk tolerance, desire to fit in with others, and their level of passion for different subjects.

    4. Conjoint Analysis

    If you want to dive deeper into demand for specific product features, you need to know conjoint analysis—a statistical approach to measuring consumer demand for specific product features. This tool will allow you to get at the surprisingly complicated feature and price tradeoffs consumers make every day.

    For example, imagine you work at Apple Inc. and you want to know what part of the iPhone you should improve; battery life, screen size or camera. A conjoint analysis will let you know which improvement customers care about more and will be worth the company’s time and money.

    Economics for Managers | Craft successful business strategy | Learn More

    5. Cognitive Biases

    There are hundreds of examples of cognitive biases that affect customers’ decision-making processes, and as such, are useful to understand in an economic context. For example, there may be an element of your product or service that clashes with a belief or assumption a potential customer has. Being able to listen, understand, and address these concerns if and when necessary is a crucial skill to develop, and can help you craft more effective marketing strategies for your product or service.

    6. Key Strategies

    Business strategy is a field in and of itself, but because many business strategies directly tie back to economic performance, it’s important to understand key strategies at a high level. Some of the most important tools and frameworks to understand are Porter’s Five Forces, SWOT Analysis, and Core Competencies.

    Porter’s Five Forces

    Porter’s Five Forces, coined by Harvard Business School Professor Michael Porter, is a business framework that attempts to open the door to deeper analysis of the competitor landscape, market, and industry. In the Harvard Business Review, Porter explains that the five forces are:

    1. Threat of new entrants
    2. Threat of substitute products or services
    3. Bargaining power of suppliers
    4. Bargaining power of customers
    5. Jockeying for position among current competitors

    These concepts allow companies to look at their industry holistically and understand where they fit into the competitive landscape.

    SWOT Analysis

    A SWOT analysis is a study performed by an organization to identify internal roadblocks and strengths in addition to any outside risk caused by other businesses. This easy-to-remember acronym stands for Strengths, Weaknesses, Opportunities, and Threats.

    Core Competencies

    A business’s core competencies are the internal resources and capabilities that allow differentiation from competitors and which ultimately grow the company. The idea of core competencies was first presented in a 1990 Harvard Business Review article and has since been used by businesses to grow revenue and expand their offerings.

    Credential of Readiness | Master the fundamentals of business | Learn More

    Developing Your Understanding of Economic Concepts

    If you’re looking to increase your knowledge, develop new skills, or advance your career in economics, the online course Economics for Managers could be a good fit for you. Taking a course in economics can prepare you to apply foundational concepts to your organization and set you up for success with more advanced economic concepts in the future.

    Are you interested in learning more about key economic frameworks? Explore our eight-week course Economics for Managers, part of our Credential of Readiness (CORe) program, or other business essentials courses to build a strong foundation for success.

    This post was updated on October 29, 2021. It was originally published on January 17, 2017.

     
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    We offer self-paced programs (with weekly deadlines) on the HBS Online course platform.

    Our platform features short, highly produced videos of HBS faculty and guest business experts, interactive graphs and exercises, cold calls to keep you engaged, and opportunities to contribute to a vibrant online community.

    Are HBS Online programs available in languages other than English?

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    We expect to offer our courses in additional languages in the future but, at this time, HBS Online can only be provided in English.

    All course content is delivered in written English. Closed captioning in English is available for all videos. There are no live interactions during the course that requires the learner to speak English. Coursework must be completed in English.

    Do I need to come to campus to participate in HBS Online programs?

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    No, all of our programs are 100 percent online, and available to participants regardless of their location.

    How do I enroll in a course?

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    Certificate Programs

    HBS Online welcomes committed learners wherever they are—in the world and their careers—irrespective of their professional experience or academic background. To extend the reach of HBS Online, we no longer require an application for our certificate programs. (Applications are still required for our credential programs: CORe and CLIMB.) You can now immediately enroll and start taking the next step in your career.

    All programs require the completion of a brief online enrollment form before payment. If you are new to HBS Online, you will be required to set up an account before enrolling in the program of your choice.

    Our easy online enrollment form is free, and no special documentation is required. All participants must be at least 18 years of age, proficient in English, and committed to learning and engaging with fellow participants throughout the program.

    Updates to your enrollment status will be shown on your account page. HBS Online does not use race, gender, ethnicity, or any protected class as criteria for enrollment for any HBS Online program.

    Credential Programs

    HBS Online's CORe and CLIMB programs require the completion of a brief application. The applications vary slightly, but all ask for some personal background information. You can apply for and enroll in programs here. If you are new to HBS Online, you will be required to set up an account before starting an application for the program of your choice.

    Our easy online application is free, and no special documentation is required. All participants must be at least 18 years of age, proficient in English, and committed to learning and engaging with fellow participants throughout the program.

    Updates to your application and enrollment status will be shown on your account page. We confirm enrollment eligibility within one week of your application for CORe and three weeks for CLIMB. HBS Online does not use race, gender, ethnicity, or any protected class as criteria for admissions for any HBS Online program.

    Does Harvard Business School Online offer an online MBA?

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    No, Harvard Business School Online offers business certificate programs.

    What are my payment options?

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    HBS Online offers a variety of payment methods to provide flexibility, including:

    • Credit and debit cards (Visa, MasterCard, Discover, and AMEX)
    • PayPal
    • Wire transfers
    • Western Union
    • Bank loans (When available)

    You may split your payment across two credit card transactions or send a payment link to another individual to complete payment on your behalf. A minimum payment of $350 is required for the first transaction.

    Some learners may also qualify for scholarships or financial aid, which will be credited against the program fee once eligibility is determined. Please refer to the Payment & Financial Aid page for more information.

    What are the policies for refunds and deferrals?

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    After enrolling in a program, you may request a withdrawal with refund (minus a $100 nonrefundable enrollment fee) up until 24 hours after the start of your program. Please review the Program Policies page for more details on refunds and deferrals. If your employer has contracted with HBS Online for participation in a program, or if you elect to enroll in the undergraduate credit option of the Credential of Readiness (CORe) program, note that policies for these options may differ.

     

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