BBABusiness Economics Concepts

Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
Paper Name : Business Economics
Paper Code : 107
Class : BBA

Business Economics
• According to Mc Nair and Meriam, Business economic consists of the use
of economic modes of thought to analyze business situations.
• Siegel man has defined business economic (or business economic) as the
integration of economic theory with business practice for the purpose of
facilitating decision-making and forward planning by management.

Scope of Business Economics
As regards the scope of business economics, no uniformity of views
exists among various authors. However, the following aspects are said
to generally fall under business economics.
1. Demand Analysis and Forecasting
2. Cost and production Analysis.
3. Pricing Decisions, policies and practices.
4. Profit Management.
5. Capital Management.

Application of business economics
1. Specific Decisions : There are several specific decisions that business
economist might have to take. Specific decisions relate to :
• Demand forecasting
• Market research
• Economic analysis of the industry
• Investment appraisal
• Security management analysis
• Advice on foreign exchange management, etc .

Application of business economics
2. General Decisions : Business is influenced not only by what decisions are
taken within the firm but also by the general business environment. General
decisions are based on two factors :
• External Factors : This includes all those factors which are outside the
control of business. The firm can only make timely adjustment to these
external factors.
• Internal Factors : This includes all those factors which are within the
control.

Various economics concepts
• Opportunity Costs
• Time Value Of Money
• Marginalism and Incrementalism
• Risk, Return And Profit

UNIT-2

Consumer Behaviour
The theory of consumer s behavior seeks to explain the determination of
consumer s equilibrium. Consumer s equilibrium refers to a situation when
a consumer gets maximum satisfaction out of his given resources. A
consumer spends his money income on different goods and services in such
a manner as to derive maximum satisfaction. Once a consumer attains
equilibrium position, he would not like to deviate from it. Economic theory
has approached the problem of determination of consumer s equilibrium in
two different ways:
(1) Cardinal Utility Analysis
(2) Ordinal Utility Analysis

Utility Analysis or Cardinal Approach
• The Cardinal Approach to the theory of consumer behavior is based upon
the concept of utility. It assumes that utility is capable of measurement. It
can be added, subtracted, multiplied, and so on. According to this approach,
utility can be measured in cardinal numbers, like 1,2,3,4 etc. Fisher has
used the term Util as a measure of utility. Thus in terms of cardinal
approach it can be said that one gets from a cup of tea 5 utils, from a cup of
coffee 10 utils, and from a rasgulla 15 utils worth of utility.

Meaning of Utility
The term utility in Economics is used to denote that quality in a good or
service by virtue of which our wants are satisfied. In, other words
utility is defined as the want satisfying power of a commodity.
According to, Mrs. Robinson, Utility is the quality in commodities that
makes individuals want to buy them.

Features of Utility
Utility has the following main features
• Utility is Subjective
• Utility is Relative
• Utility and usefulness
• Utility and Morality

Utility
There are three concepts of utility
• Initial Utility
• Total Utility
• Marginal Utility

Relationship between total utility and Marginal Utility
The relationship between total utility and marginal utility can be
explained as:
• Total utility, initially, increases with the consumption of successive
units of a commodity. Ultimately, it begins to fall.
• Marginal Utility continuously diminishes.
• As long as marginal utility is more than zero or positive, total utility
increases, total utility is maximum when marginal utility is zero. It
falls when marginal utility is negative.
• When marginal utility is zero or total utility is maximum, a point of
saturation is obtained.

Indifference Curve Approach
• According to ferguson, An indifference curve is a combination of goods,
each of which yield the same level of total utility to which the consumer is
indifferent.
• According to leftwitch, A single indifference curve shows the different
combinations of X and y that yield equal satisfaction to the consumer.

Budget line
• A budget line shows the combination of goods that can be afforded
with your current income

Law of Demand And Elasticity Of Demand
• MEANING OF DEMAND - The term demand refers to a desire for
a commodity backed by ability and willingness to pay for it.
• LAW OF DEMAND - introduces an inverse relationship between
price and demand for a good or service. It simply states that as price
of a commodity increases, demand decreases, provided other factors
remain constant. Also, as prices decrease, demand increases

Factors behind the Law of Demand
The factors that make the law of demand operate are following.
• Substitution Effect
• Income Effect

Exceptions to the Law of Demand
The law of demand does not apply to the following cases
• Expectations regarding further prices
• Status Goods
• Giffen Goods

Demand Elasticity
• The demand elasticity (elasticity of demand) refers to how sensitive
the demand for a good is to changes in other economic variables,
such as prices and consumer income

Degrees of Elasticity of Demand
• Infinite or Perfect Elasticity of Demand
• Perfectly Inelastic Demand
• Very Elastic Demand
• Less Elastic Demand
• Unitary Elastic Demand

Factors Affecting Elasticity of Demand
• Nature of commodity
• Availability of substitutes
• Income Level
• Level of price
• Postponement of Consumption
• Number of Uses
• Share in Total Expenditure
• Time Period
• Habits

Types of Elasticity of Demand
According to the source of the change, the following types of elasticity
of demand can be mentioned:
• Price Elasticity of Demand
• Cross Elasticity of Demand (the elasticity in relation to the change
of the price of other goods and services)
• Income Elasticity of Demand
• Advertisement Elasticity of Demand (the elasticity in relation to the
advertisement expenditure)

Types of Elasticity of Demand
According to the degree of the change in the demand, the elasticity can
be classified in:
• Perfectly Elastic
• Relatively Elastic
• Unit Elasticity
• Relatively Inelastic
• Perfect Inelasticity

Demand forecasting
• Demand forecasting is predicting future demand for the product. In
other words, it refers to the prediction of a future demand for a
product or a service on the basis of the past events and prevailing
trends in the present

Objectives of Demand Forecasting

UNIT-3

Theory of Production
Production refers to the transformation of inputs or resources into
outputs of goods and services
Factors of Production
Inputs are the resources used in the production of goods and
services. As a convenient way to analysis, inputs are classified into
labour, capital, land and entrepreneur. Each of these broad
categories, however, includes a great variety of basic input.

Production Function
Mathematically, a basic relationship between inputs and outputs may be
expressed as:
• Q = f( L, C, N )
• Where Q = Quantity of output
• L = Labour
• C = Capital
• N = Land.

Law of Variable Proportion
As the proportion of the factor
in a combination of factors is
increased after a point, first the
marginal and then the average
product of that factor will
diminish.

Law of Returns to Scale
In the long run all factors of
production are variable. No
factor is fixed. Accordingly, the
scale of production can be
changed by changing the
quantity of all factors of
production.

UNIT-4

Cost - Meaning
Cost denotes the amount of money that a company spends on the
creation or production of goods or services. It is the total payment or
expenditure incurred by a firm for purchasing or hiring the factors of
production.

Type of Cost
• OPPORTUNITY COST
• SHORT RUN AND LONG RUN COST
• EXPLICIT COST AND IMPLICIT COST
• PRIVATE AND SOCIAL COST
• FIXED COST AND VARIABLE COST

PERFECT COMETITION
Perfect competition also referred to as a pure competition, exists when
there is no direct competition between the rivals and all sell identically
the same products at a single price. The features of Perfect
Competition:
• Large number of buyers and sellers
• Homogeneous Product
• Free Entry and Exit
• Perfect knowledge of prices and technology
• No transportation cost
• Absence of Government and Artificial Restrictions

Pricing under various Markets
• Perfect Competition
• Monopoly Competition
• Monopolistic Competition
• Oligopoly Competition

BBABusiness Economics Concepts

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BBABusiness Economics Concepts