Simple and easy to understand....

1. ECONOMICS FOR BUSINESS
UNIT1
Dr.D.Leelavathi
Assistant Professor
SRM University, RMP, Chennai

2. Definition of economics- Economics is essentially a study of the usage of resources
under specific constraints, all bound with an audacious hope that the subject under
scrutiny is a rational entity which seeks to improve its overall well-being.
1. Supply and demand
2.Scarcity
3.Opportunity cost
4.Time value of money
5.Purchasing power
INTRODUCTION TO BASIC CONCEPTS

3. NATURE OF BUSINESS ECONOMICS
 Business Economics is a Science: Business Economics integrates these decision
sciences with Economic Theory to arrive at strategies to help businesses achieve
their goals and it follows scientific methods and also tests the validity of the
results.
 It is Based on Micro Economics:
• the basic difference between micro and macroeconomics. A business manager is
certainly more concerned about achieving the objectives of his own organization .
this helps him in ensuring profits and long-term survival of the firm.
• Business Economics is more concerned with the decision-making situations of
individual establishments. it depends on the techniques of Microeconomics.
 It Incorporates Elements of Macro Analysis
• Even though all businesses focus on their profitability and survival, a firm cannot
operate in a vacuum. The external environment of the economy like income and
employment levels in the economy, tax policies etc…
• All these external factors are components of Macroeconomy.
• A business manager has to take all such factors into consideration which may
influence his business environment.
 It is an Art
• Business Economics is an art as it requires the practical application of rules and
principle to achieve set objectives.

4.  What is Positive Economics:
• Positive economics is the stream of economics that has an objective approach,
relied on facts. It concentrates on the description, quantification, and clarification of
economic developments, prospects, and allied matters. This subdivision of
economics relies on objective data analysis and relevant facts and figures.
• It tries to establish a cause-and-effect relationship or behavioral relationship that
can help determine as well as test the advancement of economic theories
 What is Normative Economics?
• Normative economics deals with prospective or theoretical situations. This division
of economics has a more subjective approach.
• It focuses on the ideological, perspective-based, opinion-oriented statements
towards economic activities

5. SCOPE OF BUISNESS ECONOMICS
 1. Analyzing Demand and Forecasting
• Analyzing demand is all about understanding buyer behavior. It studies the
preferences of consumers along with the effects of changes in the determinants
of demand . Also, these determinants include the price of the good, consumer’s
income, tastes/ preferences, etc.
• Forecasting demand is a technique used to predict the future demand for a good
and/or service.
 2. Production and Cost Analysis
• A business economist has the following responsibilities with regards to the
production:
• Decide on the optimum size of output based on the objectives of the firm.
• Also, ensure that the firm does not incur any undue costs.
 3. Inventory Management
• Firms can use certain rules to reduce costs associated with maintaining inventory in
the form of raw materials, work in progress, and finished goods. Further, it is
important to understand that the inventory policies affect the profitability of a firm.
Hence, economists use methods like the ABC analysis and mathematical models to
help the firm in maintaining an optimum stock of inventories.

6.  4. Market Structure and Pricing Policies
Any firm needs to know about the nature and extent of competition in the market . A
thorough analysis of the market structure provides this information. Further, with the
help of this, firms command a certain ability to determine prices in the market. Also,
this information helps firms create strategies for market management under the given
competitive conditions.
price theory, on the other hand, helps the firm in understanding how prices are
determined under different kinds of market conditions. Also, it assists the firm in
creating pricing policies.
 5. Resource Allocation
• business Economics uses advanced tools like linear programming to create the best
course of action for an optimal utilization of available resources.
 6. Theory of Capital and Investment Decisions
• Among other decisions, a firm must carefully evaluate its investment decisions an
allocate its capital sensibly.
 7. Profit Analysis
• Profits depend on many factors like changing prices, market conditions, etc.
• The profit theories help firms in measuring and managing profits under such
uncertain conditions.
• they also help in planning future profits.

7.  8. Risk and Uncertainty Analysis
• Most businesses operate under a certain amount of risk and uncertainty.
• analyzing these risks and uncertainties can help firms in making efficient decisions
and formulating plans.

8. LIMITATIONS OF BUSINESS ECONOMICS
 LIMITATIONS:
• He limitations of economics become especially problematic
in normative economics , which involves recommendations about
how things ought to be and what types of policies a government
should implement in order to improve a nation's economy.
• Different economists come to completely different conclusions about
what kind of regulations and controls should be applied to various
markets and exactly what outcomes will result.
• they can point to data, historical precedence, and other facts to
support their arguments, there is no way to guarantee that they are
right Because the field of economics cannot provide concrete
conclusions, it is susceptible to criticism from a variety of sources, as
is the case with political economics. Politicians often use normative
economics to argue for certain policy changes that support their own
agendas. They present their beliefs and hypotheses to the public as
irrefutable facts when, in actuality, there is no way to verify the
validity of their ideas, except to put them into practice and evaluate
the results.

10. RELATION TO OTHER DISIPLINES
• ‘Micro’ means small. It studies
the behaviour of the individual
units and small groups of units. It
is a study of particular firms,
particular households, individual
prices, wages, incomes, individual
industries and particular
commodities. .
• The roots of managerial
economics spring from micro-
economic theory. In price theory,
demand concepts, elasticity of
demand, marginal cost marginal
revenue, the short and long runs
and theories of market structure
are sources of the elements.
• ‘Macro’ means large. It deals
with the behavior of the large
aggregates in the economy. The
large aggregates are total saving,
total consumption, total income,
total employment, general price
level, wage level, cost structure,
etc. Thus macro-economics is
aggregative economics.
• It examines the interrelations
among the various aggregates,
and causes of fluctuations in
them. Problems of determination
of total income, total employment
and general price level are the
central problems in macro-
economics.
• MICROECONOMICS • MACROECONOMICS

11. OBJECTIVES OF BUSINESS ECONOMICS
• Objectives are needed in every area where performance and results directly affect
the survival and prosperity of a business.
• Economic objectives
• Social objectives
 ECONOMIC OBJECTIVE:
• Its economic objectives relate to earning a satisfactory profit, creating customers
and making innovation.
1] Profit Earning
2] Market Share / Creation of Customers
3] Innovation & Utilization of Resources
4] Increasing Productivity
 SOCIAL OBJECTIVES:
• Social objectives of business include production and supply of quality and
standard goods and services, adoption of fair-trade practices etc…
1] Providing Goods & Services at Reasonable Prices
2] Fair Remuneration to Employees
3] Community Services

13. ROLE OF BUSINESS ECONOMICS
• Business economist helps in planning, production & marketing planning,
employing the latest organizational model & develop management
techniques to maximize output & minimize operating cost of the firm.
Advisory to the company:
• The businesseconomist advises the businessman on all economic and non-
economic
• The fundamental role of business has remained relatively constant: providing
the goods and services that people need or want

14. Responsibilities of economics
Economic responsibilities :Means ensuring an economic
advantage both to the region from where the purchase arrived and to the region
where it is marketed.
• These responsibilities are the most basic social responsibilities of business. As we
have noted, some economists see these as the only lagimate social responsibility
of business.
• Living up to their economic responsibilities requires managers to maximize profits
wherever and whenever possible.
• The essential responsibility of business is assumed to be providing goods and
services to society at a reasonable cost.
• discharging that economic responsibility, the company also emerges as socially
responsible by providing productive jobs for its workforce, and tax payments for
its local, state, and federal governments.
• The business is committed to generating economic value for its clients, business
communities, and society as part of its economic responsibilities.

15. VARIOUS ECONOMICSYSTEM
• Each economy functions based on a unique set of conditions
and assumptions. Economic systems can be categorized into
four main types: traditional economies, command
economies, mixed economies, and market economies.
 There are five distinct types of economic systems, including
the following:
• Traditional economic system.
• Command economic system.
• Centrally planned economic system.
• Market economic system.
• Mixed economic system.

16. APPLICATIONS OF ECONOMICS CONCEPT
• The scope of business economics is extensive and covers the below-mentioned
fields:
 Demand analysis and prediction: Demand forecasting is the process of using
predictive analysis of historical data to estimate and predict customers' future
demand for a product or service. Demand forecasting helps the business make
better-informed supply decisions that estimate the total sales and revenue for a
future period of time
 Pricing and production analysis: The production function or cost function of the
firm can be measured by observing the firm as it reacts to different stimuli— such
as changes in relative factor and output prices.
 Pricing plans and decisions:Cost-plus pricing. Calculate your costs and add a mark-
up.
 Profit management:Profit management is defined as the efforts of company
managers to intervene or influence the information in financial statements.
 Wealth management: A wealth management advisor is a high-level professional
who manages an affluent client's wealth holistically, typically for one set fee.

18. DIFFERNTIATE BETWEENPOSITIVE AND NORMATIVE
ECONOMICS
NORMATIVE ECONOMICS
• Normative economics aims
to determine people's
desirability or the lack
thereof to various
economic programs,
situations, and conditions
by asking what should
happen or what ought to
be.
• statements typically present
an opinion-based analysis in
terms of what is thought to
be desirable.
POSITIVE ECONOMICS
• Positive economics is an
objective stream of
economics that relies on
facts or what is happening.
Conclusions drawn from
positive economics analyses
can be tested and backed
up by data.
• Positive economic theory
does not provide advice or
instruction.

20. LONG TERMOBJECTIVES OF BUSINESS FIRM
• Long-term objectives usually include specific improvements in the
organization's competitive position, technology leadership, profitability,
return on investment, employee relations and productivity, and corporate
image.
 Personal long-term goals examples
• Become a better spouse or parent.
• Complete your first marathon.
• Create and commit to a fitness routine.
• Learn a foreign language.
• Cut junk food out of your diet.
• Start volunteering regularly.
• Increase your emotional intelligence.
• Earn a college degree.