Introduction to economics

1. Unit 1: Nature and Scope of Business Economics
Introduction- Meaning- Definition- Nature: Positive & Normative- Significance of Business
Economics- Basic Economic Problems: What to produce? - Whom to produce? - How to
produce?
Business Economics
Introduction:
Business Economics is playing an important role in our daily economic life and
business practices. In actual practice different types of business are existing and run by
people so study of Business Economics becomes very useful for businessmen. Since the
emergence of economic reforms in Indian economy the whole economic scenario regarding
the business is changed.
Various new types of businesses are emerged, while taking the business decisions
businessmen are using economic tools. Economic theories, economic principles, economic
laws, equations economic concepts are used for decision making. On this ground students of
commerce should know the importance of basic theories in actual business application.
Hence the introduction of Business Economics becomes important to the students.
In 1951 Joel Dean published a book entitled "Business Economics." The the subject
Business Economics has gained popularity. Business Economics reveals that how economic
analysis is used to formulate the economic policies in respect to the business firms.
Business Economics was formerly known as "Business Economics." It is also called
as "Applied Economics". The world Business Economics is formed from the two worlds
Business and Economics.
Meaning
Different philosophers have defined business economics or Business economics differently.
The following are some popular definitions of business economics:

2. According to 'McNair and Meriam' defined it as "Business Economics consists of the use of
Economic modes of thought to analyse business situations."
According to Mansfield, “Business economics is concerned with the application of economic
concepts and economics to the problems of formulating rational decision making”
In the words of Spencer and Seigelman, “Business Economics isthe integration of economic
theory with business practice for the purpose of facilitating decision making and forward
planning by management.”
According to Douglas, “Business economics is concerned with the application of economic
principles and methodologies to the decision making process within the firm or organization.
It seeks to establish rules and principles to facilitate the attainment of the desired economic
goals of management”.
According to Davis and Chang, “Business economics applies the principles and methods of
economics to analyze problems faced by management of a business, or other types of
organizations and to help find solutions that advance the best interests of such organization.”
From the aforementioned definitions, it can be concluded that Business economics is
a link between two disciplines, which are management and economics. The management
discipline focuses on a number of principles that aid the decision-making process of
organisations.
On the other hand, economics is related to an optimum allocation of limited resources
for attaining the set objectives of organisations. Therefore, it can be said that Business
economics is a special discipline of economics that can be applied in business decision
making of organisations.
Characteristics of Business Economics
Introduction: Business Economics is the latest terminology used in Business organization. It
denotes the application of economic theories to the business conditions and decision making
in business. It involves a coordination process linking business methods with the formation of
future plans and making decisions in business. To say in brief Business Economics is an
Applied Science in the sphere of business organization. Business Economics has been
defined by several writers in several ways and some of them are mentioned as follows:
Characteristics of Business Economics:
1. Micro economic nature: Business Economics is Microeconomics in nature because it
deals with the matters of a particular business firm only.
2. Use of economic theories: Business Economics uses all economic theories relating to the
profits, distribution of income etc.

3. 3. Realistic one: Business Economics is a realistic science. It studies all matters concerning
business organization by considering the real conditions existing in the business field.
4. Normative science: Business Economics is a normative science. It studies the matters
concerning the aims and objectives of a business firm. It determines the methods to be
adopted for achieving such objectives. It also makes inquiry into the good and bad in decision
making. Hence it is a normative science.
5. Use of Macroeconomics: Even though Business Economics has a nature of
Microeconomics, it also uses Macroeconomics approaches frequently. Certain matters in
Macroeconomics like business cycles, national income, public finance, foreign trade, etc.
which are essential for Business Economics. So, Business Economics uses the Macro
Economics phenomenon for taking business decisions. For your help, the scope of business
economics is discussed in a separate post.
Conclusion: The usefulness of business economics lies in borrowing and adopting the toolkit
from economic theory, incorporating relevant ideas from other disciplines to take better
business decisions, serving as a catalytic agent in the process of decision making by different
functional departments at the firm’s level, and finally accomplishing a social purpose by
orienting business decisions towards social obligations.
Scope of Business Economics
Introduction: 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.
These various aspects are also considered to comprise the subject matter of business
economic.
1. Demand Analysis and Forecasting: A business firm is an economic organisation which
transforms productive resources into goods to be sold in the market. A major part of business
decision making depends on accurate estimates of demand. A demand forecast can serve as a
guide to management for maintaining and strengthening market position and enlarging
profits. Demands analysis helps identify the various factors influencing the product demand
and thus provides guidelines for manipulating demand.

4. Demand analysis and forecasting provided the essential basis for business planning and
occupies a strategic place in Business economic. The main topics covered are: Demand
Determinants, Demand Distinctions and Demand Forecasting.
2. Cost and Production Analysis: A study of economic costs, combined with the data drawn
from the firm’s accounting records, can yield significant cost estimates which are useful for
management decisions. An element of cost uncertainty exists because all the factors
determining costs are not known and controllable. Discovering economic costs and the ability
to measure them are the necessary steps for more effective profit planning, cost control and
sound pricing practices.
Production analysis is narrower, in scope than cost analysis. Production analysis frequently
proceeds in physical terms while cost analysis proceeds in monetary terms. The main topics
covered under cost and production analysis are: Cost concepts and classification, Cost-output
Relationships, Economics and Dis-economics of scale, Production function and Cost control.
3. Pricing Decisions, Policies and Practices: Pricing is an important area of business
economic. In fact, price is the genesis of a firms revenue and as such its success largely
depends on how correctly the pricing decisions are taken. The important aspects dealt with
under-pricing include. Price Determination in Various Market Forms, Pricing Method,
Differential Pricing, Product-line Pricing and Price Forecasting.
4. Profit Management: Business firms are generally organised for purpose of making profits
and in the long run profits earned are taken as an important measure of the firm’s success. If
knowledge about the future were perfect, profit analysis would have been a very easy task.
However, in a world of uncertainty, expectations are not always realised so that profit
planning and measurement constitute a difficult area of business economic. The important
aspects covered under this area are:
Nature and Measurement of profit, Profit policies and Technique of Profit Planning like
Break-Even Analysis.
5. Capital Management: Among the various types business problems, the most complex and
Troublesome for the business manager are those relating to a firm’s capital investments.
Relatively large sums are involved and the problems are so complex that their solution
requires considerable time and labour. Often the decision involving capital management are
taken by the top management.
Briefly Capital management implies planning and control of capital expenditure. The main
topics dealt with are: Cost of capital Rate of Return and Selection of Projects.

5. Conclusion: The various aspects outlined above represent major uncertainties which a
business firm has to reckon with viz., demand uncertainty, cost uncertainty, price uncertainty,
profit uncertainty and capital uncertainty. We can therefore, conclude that the subject matter
of business economic consists of applying economic principles and concepts to dea1 with
various uncertainties faced by a business firm.