Basic Economic Decisions Flashcards, test questions and answers

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What is Basic Economic Decisions?

Economic decisions are choices made by individuals and businesses in order to maximize their profit or minimize their losses. There are four basic types of economic decisions that all firms, whether large or small, must consider when operating within the market economy: production, pricing, financing, and distribution. Each type of decision is important to the success of a business and its ability to remain competitive in a changing market environment.Production decisions focus on what goods and services a firm should produce to optimize its profits. This involves determining the best combination of resources required for production as well as evaluating the costs associated with manufacturing those goods or services. It also requires analyzing customer demand for different products in order to determine which items should be manufactured at what quantity levels. As markets evolve over time, firms must make production adjustments accordingly so that they remain competitive with their rivals in terms of price-performance ratio and quality standards. Pricing decisions involve setting prices for products or services based upon expected demand from customers as well as costs associated with producing them. Companies need to take into account factors such as competition from other firms in the same market space, customer preferences regarding product features, government regulations related to pricing practices etc., while making pricing decisions so that they can generate adequate returns on investments while still remaining competitive against their rivals in terms of value offered for money spent by customers. Financing decisions refer to how much capital a firm needs for operations and investments related activities such as research & development (R), marketing campaigns etc., along with sources from which such funds may be obtained like loans taken from banks/financial institutions or venture capital investments/equity funding through private investors etc. Depending upon availability/costs associated with various financing alternatives available at disposal it may be necessary for companies to make changes in their financial strategies so that they have access to enough funds necessary for running operations smoothly without putting excessive burden on finances due to high interest rates charged by lenders etc. Distribution refers mainly towards deciding how goods & services produced should reach end consumers i.e., via own retail stores/franchises or through third party distributors like wholesalers/retailers who would act as intermediaries between companies & final buyers etc.