Business Economics- Nature scope and importance

Business economics in general sense refers to the integration of economic theory with business practices. Business economics on the other hand applies these tools and concepts to the management of business. In this sense business economics is called managerial economics or applied economics. In other words, business economics involves analysis of allocation of the resources available to a firm among its activities. It is concerned with the application of economics in decision making. Economics as a science is concerned with the problem of allocation of scarce resources among the competing ends. These problems of allocation are regularly faced by the individuals, firms and business corporations. Economics provides the tools and concepts which e plain the behaviour pattern of economic variables such as demand, supply, price, competition, etc

!eaning of Business economics

Business economics in its simplest form may be defined as the application of economic theory to the problems of management. Business economics is that part of economic is that part of economic theory which deals with the application of economic tools and concepts to the solution of business problem or the problem of resource allocation among the competing ends.

Definitions
"ccording to Edwin !ansfield, #managerial economics is concerned with the ways in which managers should make decisions in order to ma imi$e effectiveness or performance of the organi$ation they manage.% In the words of &.'.(auge,% Business economics is a fundamental academic sub)ect which seeks to understand and to anlyse the problems of business decision making.%

In the words of *pencer and siegelman,% Business economics is the integration of economic theory with business practices for the purpose of facilitating decision making and forward planning by the management.% !anagement decisions problems can be solved by the application of economic theory and tools of decision sciences. Economic theory refers to !icro and !acro economics and decision sciences include the tools of !athematical Economics and Econometrics which are used for determining the optimal behaviour of the organi$ation. In nutshell it can be concluded that business economics refers to the application of economic theory and the tools of analysis of decision science find the optimal solution to business decision problems.

+eatures of Business economics

,. Business economics is concerned with decision-making of economic nature. -. Business economics is goal oriented and prescriptive. .. Business economics is pragmatic. It is concerned with those analytical tools which are useful in improving decision-making. /. Business economics is both #conceptual and metrical%. Business economics to bring forth solution of problems, provides necessary conceptual tools and helps the decision maker by providing measurement of various economic entities and their relationships.

+undamental nature of Business Economics

Business economics is the integration of economic theory with managerial practice for the purpose of facilitating decision making and forward planning by management.

Economic Theory
Two branches ,. !acro-economics -. !icro-economic "nalysis

Macro-economics0 The macro-economics concepts deal with

aggregate economic concepts relating to the entire economy. It provides the framework of economic environment in which the firm or industry operates. The main characteristics of the macro-economic environment are as follows0 !acro economists e amines and e plains the determination of the level of composition, fluctuations 1cycles2 and trends 1growth2 in the overall economic activity i.e national income, output, and employment

Importance of macro economics ,. +ormulation and e ecution of economic policies -. +unctioning of economy .. (elps to understand micro economics better /. *tudy of economic development 3. *tudy of welfare 4. Theory of inflation and deflation 5. International comparisions

!icro economics0 is our sub)ect concern

,. -. .. /. Theory of demand 'onsumer behaviour Theory of production 'ost analysis and price output decisions

6ositive vs normative "pproach Positive approach concerns with what is while Normative approach concerns with what ought to be. The statement 7a government deficit will reduce unemployment and cause an increase in prices8 is a hypothesis in positive economics, while the statement 7in setting policy, unemployment ought to matter more than inflation8 is a normative hypothesis.

Integration of Economic Theory and Business practice a2 9ith the help of economic theory we can understand the actual behavior of business. b2 Business economics attempts to estimate and predict the economic :uantities and relationships. c2 &ecision making and forward planning is done with the help of estimated economic :uantities and relationships. d2 The managers cannot ignore the environment within which they operate. Nature of Business Economics ,. Business economics is micro-economic in character, where the unit of study is a firm. -. Business economics is concerned with normative micro-economics and not with positive economics. It tells us that what ob)ectives a business firm should pursue and how they should be set. .. Business economics concentrates on making economic theory more application oriented. Business economics is more pragmatic. /. Business economics takes the help of macro-economics also so as to understand the e ternal conditions which are relevant to the business. Chief characteristics of Business Economics ,. !icro Economic in nature. It is the study of the firm. -. (elp of !acro Economics to ad)ust to the environment in which the firm operates. .. 6ragmatic0 Business Economics is pragmatic. It avoids difficult abstract issues of economic theory but involves complications ignored in economic theory to face the overall situation in which decisions are made. /. Normative 3. 'onceptual and !etrical 4. Theory of firm0 the contents of Business economics are based mainly on the theory of firm, it is only for the analysis of profits that help is taken of the theory of distribution.

5. 9ise choices 0 ;. !ulti-disciplinary Scope of Business Economics Theory of demand "nalysis and forecasting Theory of production and production decisions "nalysis of market structure and pricing theory 'ost analysis 6rofit analysis and profit management Theory of capital and investment decisions Inventory management

Thus business economics tries to find out whatever is likely to be the best for the firm under a given set of conditions. How does Business economics differ from economics???? *.no Business Economics ,. Business economics involves application of economic principles to the problems of the firm. -. It is micro-economics in character. .. Though micro in character deals only with the firm and has nothing to do with an individual8s economic problems. /. In business economics mainly profit theory is used other distribution theories have not much use. 3. Business economics adopts, modifies and reformulates economic models to suit the specific conditions and serves the Economics Economics deals with the body of the principles itself. Is both macro-economic and micro economic. !icro economics as a branch of Economics deals with both economics of the individual as well as economics of the firm. "ll !acro Economic theories like wages, interest, and profit are also dealt with in economics. It builds hypothesis and economic models.

4.

specific problem solving 6rocess. Business economics introduces It makes certain assumptions to certain feedbacks such as create theories and models. ob)ectives of the firm, multi product nature of manufacture, availability of resources.