NATURE AND SCOPE OF BUSINESS ECONOMICS

At the end of this Chapter, you will be able to:

1. Explain the Meaning of Economics.

2. Describe the Meaning and Nature of Business Economics.

3. Describe the Scope of Business Economics.

SUMMARY

1. An economy exists because of two facts, i.e. human wants are unlimited and the resources are scarce.

2. Economics is the study of processes by which the relatively scarce resources are allocated to satisfy the competing unlimited wants of human beings in a society.

3. The subject matter of Economics is divided into two parts – Micro and Macro Economics

4. Microeconomics examines how the individual units (consumers or firms) make decisions as to how to efficiently allocate their scarce resources.

5. Macroeconomics study the behaviour of the large economic aggregates, such as, the overall levels of output and employment, total consumption, total saving and total investment exports and imports, and how these aggregates shift over time.

6. Business Economics integrates economic theory with business practice and relies on economic analysis in the formulation of business policies.

7. While Business Economics is basically concerned with Micro Economics, Macro economic analysis has got an important role to play. Macroeconomics analyzes the environment in which the business has to function.

8. Business Economics is a normative science which is interdisciplinary and pragmatic in approach.

9. There are two categories of business issues to which economic theories can be directly applied, namely: Microeconomics applied to operational or internal Issues and Macroeconomics applied to environmental or external issues.

10. Business Economics makes use of microeconomic analysis such as, demand analysis and forecasting, production and cost Analysis, inventory management, market structure and pricing policies, resource allocation, theory of capital and investment decisions, profit analysis and risk and uncertainty analysis.

11. Business Economics also considers Macroeconomics related to economic systems, business cycles, national income, employment, prices, saving and investment, Government’s economic policies and working of financial sector and capital market.