Basically, economic theories describe how people make choices. In a very broad sense, they describe how people decide what to do in certain situations. In other words, economic theory teaches you to think; not what to think. Economists view the world from a different lens than traditional anthropologists, psychologists, biologists, or other practitioners of any such field.
They study social behaviors and economic problems with conventional economic theories which are completely different from the assumptions that most people believe. People tend to believe that circumstances are determined solely by individual characteristics. This is why some people get ahead and others remain in the same place year after year.
But this isn’t the way the world really works. For example, some businesses have a proven track record of success while others don’t. A business doesn’t have to stay the same because it’s growing. It has to be versatile and adaptable so it can succeed in a new market. A similar principle applies to human behavior.
When you study the world of business, you learn that economic theories are very important. You also learn that these economic theories can be tested. That is, if you want to know whether a business will succeed or fail, you need to test its ability to be flexible and adaptable. You can’t simply set up the same old operating procedures and expect the same results. Of course, this doesn’t mean that it won’t be able to survive under new circumstances, but it does mean that you will need to make some changes to its internal structures and operations to ensure it continues to be successful.
If you study the workings of economic theory, you learn that humans are not only predictable, but they are also capable of doing irrational things. Economic theories to explain this phenomenon. People are capable of behaving irrationally not because they are illogical but because of their need for security. They will do what’s necessary to get what they need. To them, the risk of facing threats and losing money is too high to take, so they’ll behave in irrational ways to protect themselves from that loss.
That’s why it’s very important for business owners to pay attention to how their business is being run. Are people working harder than they should be? Are business owners using their resources in the best ways possible? Are they using their knowledge to solve problems or to increase their profits? The answers to those questions form the basis of every economic theory.