In business, it is essential for owners to consider important factors when developing their business goals. Economics is used as a tool to solve coordination problems. They include what and how much product to produce, how to produce their product, and who they produce for. In order to effectively answer these questions, economics is used. Colander (2006) describes economics as “the study of how human beings coordinate their wants and desires, taking into account the decision-making mechanisms, social customs, and political realities of society” (p. 4). The foundations of economics are based on several factors that help to understand an economy. These factors include economic reasoning, economic knowledge, economic institutions, and economic policy options. Economic reasoning is a way of thinking that evaluates an option based on costs and benefits. Terms such as marginal costs, marginal benefits, and opportunity cost explain economic reasoning in more detail. Marginal costs and benefits are the additional costs and benefits to you, respectively, beyond those you have already obtained. Opportunity cost is the cost lost by not selecting one option in favor of another. Knowledge in economics is the theories discovered by economists and useful in understanding trends. One of the best known is the invisible hand theory. Economic institutions include, but are not limited to, the laws, common practices, and organizations of a society and provide the basis for understanding whether economic theory can be applied to reality (Colander, 2006, p. 14) . It is very common for economic institutions to vary across countries. Finally, the action or inaction taken by the government to influence economic actions is called economic policy...... middle of paper ......w individuals demand products and goods offered in relation to how businesses provide these goods and services. . Economics relies on several factors such as economic reasoning, ideas, terminology, institutions and policy options that contribute to the development of the economy as a whole. The laws of supply and demand illustrate the relationship between producer and consumer based on price and quantity supplied and demanded. The inverse relationship of the law of demand and the direct relationship of the law of supply with price and quantity allow economists to measure certain factors such as market equilibrium. These factors can change with movements and shifts along the supply and demand curves. In order to fully understand these movements and precisely quantify their effects, the elasticity of supply and demand is calculated to better illustrate how businesses and individuals will react to price changes..