Basic Knowledge in Economics is essential to Investing
Economics isn’t a theoretical academic disciple that is out of touch with the real world. In fact, some basic and essential knowledge in Economics enables you to interpret crucial economic indicators which in turn assist you in tracking down investment ideas. The details of which shall be further explored in this blog.
After all, the prices of all goods and services we purchase, from food, energy, automobiles, clothing, and new apartments determine the profitability of businesses involved in procuring them. A sharp rise in oil barrel prices somehow translate into a few billions dollars more of profits for major oil companies like Exxon Mobil, chevron etc.
Basic concepts in Economic, scarcity, supply and demand, marginal utility are useful frames of reference in predicting market performances. It is no surprise that Creative Technology experiences operating losses for a few consecutive quarters, a person who buys an Ipod is highly unlikely to buy another Creative Zen. This is due to two fundamental concepts in Economics, first is scarcity Plato thinking, spending hundreds on another Mp3 player means less money for other stuffs. Secondly, happiness or utility in consuming a particular product decreases with each additional unit. In other words, owning an Ipod makes you happy but having 2 Ipods doesn’t mean the happiness is doubled. Given the preference for Ipod by consumers as a result of its branding or whatsoever, Creative does sells less of its Mp3 players.
As such, it is recommended for you to take an Introductory Economics course for one semester if you are still in college or buy this Economics Textbook by Ben S. Bernanke I find it give a very good illustrations of basic economics principles and will further inspire you in the subject.
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