BUSINESS ECONOMICS SCOPE, NATURE, OBJECTIVES, POSITIVE AND NORMATIVE ECONOMIC, & LIMITATION

1. 1.Economic is the science studies the
economics activities of man and of the
community.
2. It deals with man’s day to day life, of
his work, of his income and of his
expenditure

2. Why do we studies
economic
 1. Man has unlimited wants or ends;
 2. The means or resources to satisfy
them are limited;
 3. These resources are not specific but
have alternatives uses:
 4. Man has therefore to choose between
wants

3. 1. 1.Wealth definition – Adam smith
2. 2.Welfare definition – Alfred Marshall
3. 3.Scarcity definition – Lionel
Robbins
4. 4.Growth and Development
definition – Modern Economists Paul
A samuelson .

4. Definition of economics
 The word “Economics has been derived
from two Greek words, Oikos {meaning
a house} and Nemein { meaning to
manage} Economics explain how a
household and a society manage with
limited funds in an economical manner

5. In modern days, the term “managerial
Economics” is preferred to “Business
Economics” as the theories and
principles of economics are applied and
made use of as tools in business
management

6. Scope of Business Economics
Demand Analysis and Forecasting
Cost and Production Analysis
Pricing Decision, Policies and
Practices
Profit Management
Capital Management

7. Nature of business economics
 1. business economics deals with the decision
process, decision model and decision variables at
the firm level.
 2. In business, a management executive has the
prime function of a business executive in decision
making and forward planning
 3. Decision making- means the process of
choosing one action from two or more alternative
available to the business executive – involve
choice.
 4. Forward planning – means establishing plans
for the future. The plans focuses on the future
programme of action by the business unit.

8. Financial decision
Production decision
Personal decision
Marketing decision
Miscellaneous decision
Nature of Business
Economic

9. OBJECTIVES OF A BUSINESS FIRM
1.profit Maximization as on objective of a firm
 1. To prevent potential competitors
 2. To prevent government intervention
 3. To acquire Consumer’s Goodwill
 4. To secure Industry Leadership
 5. To check Demand Image of efficiency
 6. To achieve Financial soundness and
Liquidity
 7. To retain Image of Efficiency
 8. To avoid Risk

10. 2. Sales Maximization Goal
3. Maximize the Rate of Growth Goal
4. welfare Goals
 A. The employees
 B. the society
5. Multi- Goals of a Modern Firm
 A. production goal
 B. inventory goal
 C. sales goal
 D. profit goal

11. a. Production goal
b. B. inventory goal
c. C. sales goal
d. D. profit goal
6. Long- term objectives of Firms

12. DIFFERENCE BETWEEN POSITIVE AND
NORMATIVE ECONOMICS
Positive Economics Normative Economics
 1. it express what is
2. it is based on cause and
effects of facts
 3. it deals with actual or
realistic situation
 4. it can be verified with actual
data
 5. it deals with how an
economic problem is solved
 6. in this value judgment are
not given. It is neutral
between ends.
 1. its express what should be
 2. it based on ethics
 3. it deals with idealistic
situation
 4. it cannot be verified with
actual data
 5. it deals with how an
economic problem should be
solved
 6. in this value judgment are
given

13. DIFFERENCE BETWEEN POSITIVE AND
NORMATIVE ECONOMICS
Positive Economics Normative Economics
 7. Economists of positive
school for Adam Smith and
his followers
 8. Observe these
examples:
 A. what determines the
price rise?
 B. government has
adopted policies to reduce
unemployment
 C. The rate of inflation in
India is 6 percent
 7. Economists of normative
school are Marshall, Hicks
 8. compare these
examples
 A. what is a fair price
 B.unemployment is worse
than inflation
 C. the rate of inflation
should not be more than 6
percent

14. 1. Economics is a social science that
examines how people produce, distribute,
and consume goods and services. This
means that much of the field is based on
human behavior, which can be somewhat
irrational and unpredictable.
2. Economists- being able to predict
markets' performance accurately and
know exactly how certain policies will
affect different sector and economies

15.  3. The limitation of economics become
especially problematic in normative
economics
 4. 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.
 5. Different economists come to completely
different conclusions about what kind of
regulations and control should be applied o
various markets and exactly what
outcomes will result

16.  6. Economics cannot provide conclusion
 7. Politicians often use normative
economics to argue for certain policy
changes that support their own agendas.
 8.There is no way to verify the validity of
their ideas, except to put them into practice
and evaluate the result
 9.Economics was born out of the idea that
human beings could study the nature of
wealth in order to better the world, but it is
a problematic area

17.  Positive economic can help people
understand what is currently
happening, it is much more difficult
to use similar modes of thinking to
predict the future and influence
policies to ensure overall
improvements.

18. business economist – specialized in basic economic
theory and with this knowledge he applies it to
business prosperity
He is called as adviser – to takes several economic
decision - growth of a firm
He study cost – price- output relationship- and advice
the business – fixing the price - product
He is requires to solve – various problem- concerning
decision making and forward planning
Nowdays all big business organisation are utilising –
services of business economists
Conclusion with the help of business economists many
businessmen has taken correct decision by using
their knowledge

19. Business economists can help the Board of
management in several ways
 1. Decision making – what product to be produced
 Fixing the price and determine marketing strategy –
external forces
2. He can also assist the management in business
operation – amount of capital to be invested
3. He has to analyze and forecast external factors which
affect the business prosperity
4. Provide necessary information and guidance to tackle
problems both during inflation and deflation
5. Business economists - act as friend, philosopher,
and guide to the businessmen – suggestions and
give proper direction and guidance to the firm

20.  Business economists has to conduct national,
international, inter-industry studies and product line
research to assist the management to take suitable
decision
 Business economists should co-ordinate the
activities of various department of the firm
BUSINESS ECONOMIST IS REQUIRED TO TACKLE VARIOUS
QUESTION
1. The present and future outlook of the national
economy – present phase of growth - economy is
facing inflation or recession
2. The growth rate of population and the occupational
distribution of population and the income pattern of
various categories of population

21.  The foreign exchange regulation and
sources of foreign capital for the expansion
and modernization of the firm
 Price variations of both raw materials,
finished products and the extent of
competition that the firm has to face.
 The problem of institutional finance for the
firms and ways of obtaining intuitional
finance for the development of the firm

22. Professors K.J.W. Alexander G have outlined
specific functions of the business economist in an
industrial organisation
 1. sales forecasting
 2. industrial market research
 3. economic analysis of competitors
 4. Pricing of industrial products
 5. Capital budgeting
 6. Production programmes
 7. Future investment programmes
 8. Advice on trade and public relations
 9. Advice on the purchase of raw materials

23.  10. advice on inventory building
 11. advice on the use and
conservation of foreign exchange
earnings
 12. Market survey to determine the
nature and extent of competition
 13. Environmental aspects

24. Role of business economists in India
 1. Macro forecasting of demand and supply. The
planning commission projects future demand
and supply of various commodities.
 Micro and macro level production planning
 Planning of capacity production and
determination of product mix
 Preparing economic feasibility of new
production processes, diversification of
production, etc.,
 Participating in the planning process of
company’s development
 Preparing periodical economic reports on
company’s product sales

25.  Participating in seminars, conferences,
workshop organized by chambers of
commerce or Industry’s Association
 Preparing rules and principles which
facilities in attaining the goals and
objectives of the company.
 Suggesting how economic theories and
methodologies can be applied in the
decision making process of the firm

26. Responsibilities of the business Economist
Better
management of
resources
Economic
forecast
Responsibilities
of the business
economists

27. Economic theories applied to business analysis
or
application of economic concept in business
 1. The opportunity cost principle
 2. Incremental Principle
 3. Principle of Time perspective
 4. The Discounting principles
 5. The Equi- Marginal Principle

28. The opportunity cost principle
 1. opportunity cost the cost involved in any
decision that consists of sacrifice of alternative
required by that decision
 2. If there are no sacrifice there are no costs
 3. The opportunity costs are measured by
sacrifices made in the decision.
 4. This can be very well understood by the
following examples
 5. The opportunity costs of funds employed in
one’s own business is the interest that could be
earned on those funds had they been employed
in other ventures

29. The incremental principle
 1. economists use the incremental principles in the
theories of consumption, production, pricing and
distribution
 2.Incremental concept is closely related to
marginal cost and marginal revenue in the theory
of pricing.
 3. Incremental cost involves estimating the impact
of decision alternatives on cost and revenue,
emphasizing the changes in the total cost and total
revenue resulting from changes in prices,
products, procedures, investments, etc.,
 4. Incremental principles components –
incremental

30. Concept of Time Perspective
 Time element has played a decisive role in economic theory.
Alfred Marshall introduced time element in the theory of value
by introducing four concept viz
1. Very short period 2. short period 3. long period 4. secular
period
2. 1. In Economic theory as far as decision are concerned, the
distinction between short and long period is uncommon.
3. 2. But in business economics a decision should take into
account both the short time and long time effects on revenue
and costs based on the ability of business firms to change
the use of different inputs.
4. 3. Decision should take into account both the short run and
long run effects on revenue and costs giving appropriate
weight to the most relevant time periods.

31. Discounting concept
 1.Another important concept – discounting
concept
 2. This principle has its genesis in valuing the
money received at different points of time.
 3. It refers to the time value of money
 4. Whenever a project is accepted for
investment –its constitutes on outflow of cash.
 5. Eg rupees received immediately is
preferable to a rupee received at some date

32. Equi- marginal utility
 1. The principle deals with the allocation of
the available resources among the
alternative activities
 2. An input should be allocated in such a
way that the value added by the last unit is
the same in all cases
 3. VmPa = VmPb = VmPc = VmPd
 4. The firm allocates labour for each of the
activities in such a manner in which the
value of the marginal product is equal in all
activities.