The document provides an introduction to basic concepts in business economics. It defines key terms like household, consumer, firm, plant, and industry. It also outlines the goals of firms, including both economic goals like profit maximization and shareholder wealth maximization, and non-economic goals like social responsibility and maintaining goodwill with employees. The document also introduces tools for economic analysis such as functional relationships, equations, graphs, and schedules that are used to symbolize relationships between economic variables.

1. INTRODUCTION AND BASIC
CONCEPTS OF BUSINESS ECONOMICS
Dr. B. G. Lobo
Vice Principal,
Faculty of Arts and Commerce,
Prof. Ramkrishna More College, Akurdi, Pune-44

2. 1.1 Meaning of Business Economics
Business Economics or Managerial Economics,
generally refers to the integration of
economic theory with business practice.
In BE economic knowledge, logic, theories
and analytical tools that are used for rational
business decision making.
McNair and Meriam “Business Economics
consists of the use of Economic modes of
thought to analyze business situations."

3. Nature of Business Economics
1. Applied branch of Economics
2. Based on Micro Analysis
3. Normative Science
4. Positive Science
5. Price is a key variable
6. Consumer and Producers studied separately
7. Based on Case Study Method
8. Science as well as Arts
9. Interdisciplinary

4. Scope of Business
Economics
Consumer
Behaviour
1. Utility
Approach
2.
Indifferenc
e Curve
3. Revealed
Preference
Product
Pricing
Demand
Analysis and
Forecasting
Concept
Determinants
Law of Demand
Elasticity of
Demand
Supply
Analysis
]
Cost and
production
Analysis
Behaviour of
Firms
Market
structur
e and
Pricing
practice
s
Perfect
Competition
Imperfect
Competition
Profit
Management
Capital
Manage
ment
Theory
of
Distribu
tion
Economic
Welfare
Theory
Risk
and
Uncerta
inty
Theory

5. Importance of Business Economics
1 • Determination of Business Policies
2 • Business Planning
3 • Help for control Cost of Production
4 • Future Planning of Business
5 • Helpful in Profit Planning
6 • Price determination in Product and Factor Market
7 • Analyze the effect of Government policies
8 • Help in long run Sustainability

6. 1.2 Concept of Micro and Macro
Economics

8. 1.3 Tools
for
Economic
Analysis
FUNCTIONAL
RELATIONSHI
P
GRAPHS
SCHEDULE EQUATIONS

9. A simple technical term is used to analyze and symbolizes a
relationship between variables.
Indicates how the value of dependent variable depends on the
value of independent or other variables.
Demand for good depends upon its price. It is
expressed as
D = f (P)
Where D = Demand, P = Price and f =
Functional relationship.
1. Functional Relationship

10. Economic theory is a verbal expression of the functional relationships
between economic variables. When the verbal expressions are
transformed into algebraic form we get Equations.
For example, the functional relationship between
consumption (C) and income (Y) can take different
forms.
C = a (Y)
where consumption (C) is related to income (Y)
2. EQUATIONS

11. A graph or a diagram presents the relationship between two
or more sets of data or variables that are related to one
another.
It represents the values of only two variables at a time.
A graph has a horizontal line termed as X axis and a vertical
line termed as Y axis.
The point of intersection is termed as 'origin’ point.
The surface is divided into four parts, each part is called a
quadrant.
3. GRAPHS

12. Schedule is a representation of
Mathematical data in a tabular format of
values of dependant and independent
variables.
4. SCHEDULE

13. 1.4 BASIC
CONCEPTS
Househol
d
Consume
r
Firm
Plant
Industry

14.  A household refers to a social unit of people living in a house or a home, i.e.,
underoneroof.
 United Kingdom Statistical Department "one person or a group of people
who have the accommodation as their only or main residence and for a
group, either share at least one meal a day or share the living
accommodation, that is, a living roomor sitting room".
1. HOUSEHOLD

15.  The consumer is an individual who pays some amount of money
for the thing required to consume goods and services. As
such, consumers play a vital role in the economic system of a
nation. Without consumer demand, producers would lack one of
the keymotivations to produce:
2. CONSUMER

16.  A firm is a for-profit business, usually formed as a partnership, that provides
professionalservices,suchaslegaloraccountingservices.
 The theory of the firm posits that firms exist to maximize profits. A business
firmhasoneormore locationswhichallhavethesameownership
3. FIRM

17.  A plant is an integrated workplace, usually all in one location. A plant
generally consists of the physical capital, like the building and the
equipment at a particular location that is used for the production of
goods. A plant is alsocalleda factory.
4. PLANT

18.  An industry is a group of sector that produces goods or
related services within an Economy.
 The major source of revenue of a group or company is an indicator of
what industry it should be classifiedin.
5. INDUSTRY

19. 1.5 GOALS OF FIRMS
1. Shareholder Wealth Maximization
2. Profit Maximization
3. Management Reward Maximization
4. Growth of the Firm
5. Sales Maximization
6. Long run Survival
Economic
Goals

20. 1. Shareholder Wealth Maximization
This goal states that management should seek to maximize the present value of the expected
future returns to the owners (that is, shareholders) of the firm.
These returns can take the form of periodic dividend payments or proceeds from the sale of
the common stock.
 Shareholder wealth is measured by the market value of the shareholders’ common stock
holdings.

21. 2. Profit Maximization
Profit maximization is the capability of a business or company to earn the maximum
profit with low cost which is considered as the chief target of any business
Its argue that profit is a test of economic efficiency; it leads to effective utilization of
scare economic resources in every business firm, and it leads to total economic welfare
of every individual firm.

22. 3. Management Reward Maximization
Reward management aims to create and efficiently
operate a reward structure for an organization.
Formulation and implementation of strategies and policies
that aim to reward people accordance with their value to
the organization.
Reward structure usually consists of pay policy and
practices, total reward, minimum wage, executive pay and
team reward.

23. 4. Growth of the Firm
Business grow for a number of reasons including:
•To increase profits
•To decrease costs
•To dominate the market
•To reduce risk
•To fulfill objectives of management

24. 5. Sales Maximization
This objective involves selling as many units of a good or service as possible, without
making a loss.
This means sacrificing some short-term profit with a view to achieving a longer term
gain.
Firms often seek to increase their market share for various reasons: Increased market
shareincreases monopoly power andmay enable the firm toput up prices and make more
profit in the long run.

25. 6. Long run Survival
According to Rothschild, main objective of a firm is to obtain the stage of long-run
survival.
A firm having this aim is always reviewed cautiously and all of its decisions are safety-
oriented.
Such firms do not like to reap larger profits in short-run but prefer lower profits in
the long-run.

26. Non Economic Goals
Goodwill of the
Employees
Social Responsibility
and Welfare
Political Power and Prestige

27. 1. Political Power and Prestige
•The large business corporation has become a governing institution in national and
global politics.
•The successful wealth generation and ideological victories the large business
corporation has become an effective political actor and has entered into partnership
with government in the design of public policy anddelivery of public services.

28. 2. Social Responsibility and Welfare
•Social responsibility means that businesses, in addition to maximizing
shareholdervalue, mustact in a mannerthat benefits society.
•Social responsibility has become increasingly important to investors and
consumers who seek investments that are not just profitable but also
contributeto thewelfare ofsociety and theenvironment.

29. 3. Goodwill of the employees
•Employee goodwill is an asset to both you and the employee who plans to
leave, asit promotesthefeeling ofinclusion, at nocosttoyour company.
•Employee goodwill truly begins with an attempt to balance competing
interests.
•Other benefits than money wage i.e. medical facilities, free transport,
children education.