This document provides an introduction to business economics and fundamental economic concepts. It discusses how economics deals with how individuals earn and spend income to maximize gains. Economics studies the economic problems faced by individuals, businesses, society, and globally due to unlimited wants and limited resources. Economics teaches rational decision making to deal with scarcity. The economic problem involves determining what and how goods and services should be produced, and who should receive them, given scarce resources. Opportunity cost is the next best alternative given up when making a choice. Business economics applies economic principles to solve business problems and facilitate decision making.

1. Unit 1
Introduction of
Business Economics &
Fundamental Concepts

2. What is economics?
Economics as a subject deals with how people earn
and spend their income to maximize their economic
gains. It is concerned with the study of economic
activities of various individuals and the society.
Economics deals with economic problems of the
individuals business units, society and that of the
globe.
An economic problem arises on account of the
following reasons
1.Unlimited wants
2.Limited resources
3.Alternative use of resources
4.Problem of choices

3. Economics is a logic of choice. It
teaches the art of rational
decision making in economizing
behavior to deal with the problem
of scarcity.

4. The Economic Problem
• Unlimited Wants
• Scarce Resources –
Land, Labour, Capital
• Resource Use
• Choices

5. The Economic Problem
• What goods and services should an economy produce? –
should the emphasis be on agriculture, manufacturing or
services, should it be on sport and leisure or housing?
• How should goods and services be produced? – labour
intensive, land intensive, capital intensive? Efficiency?
• Who should get the goods and services produced? – even
distribution? more for the rich? for those who work hard?

6. Opportunity Cost
• Opportunity cost is the value of what is given up
when a choice is made.
• Every time you make a choice, you give up
something else.
• You might decide to watch TV instead of washing a
neighbor’s car to make some money.
• Your opportunity cost is the money you could have
made washing the car!

7. Making Choices
All choices require giving up something
• A farmer decides to
grow corn instead of
tomatoes.
 His opportunity cost is
the tomatoes he could
have grown.

8. Making Choices
All choices require giving up something
• A girl decides to
babysit instead of
going roller skating
with her friends.
 Her opportunity cost is
the time she could have
had with her friends
roller skating.

9. Making Choices
All choices require giving up something
• A dad decides to watch
his son’s soccer game
instead of earning some
extra money fixing the
neighbor’s computer.
 His opportunity cost is
the money he could
have earned fixing the
computer.

10. Oh Give Me a Choice
(Tune: Home on the Range)
Oh give me a choice,
Oh, a difficult choice,
And I’ll think about what I could use.
I’ll have to decide,
With my eyes open wide,
What I’ll give up and what I will choose.
Opportunity cost!
It’s the thing you give up when you choose.
It’s the price that is paid
When a choice must be made.
It’s the thing that I surely will lose.
Let’s sing a song about
choice and opportunity
cost.

11. Leaders throughout history have had to make
choices that involved opportunity cost.
• The kings and queens
decided to spend
money to search for a
short cut to Asia. They
paid for ships, supplies,
and manpower.
 Their opportunity cost
was the money that
could have be used for
important things at
home or to trade with
other countries closer
to home.

12. Business Economics
Business Economics deals with the
applications of economic laws to business
problems to take sound business decisions.
Business Economics is a science which
deals with the application of economic
theories techniques principles and concepts
to business management in order to solve
business and managerial problems.

13. Managerial
economics is the integration of economic theory with business practice for
the purpose of
facilitating decision making and forward planning”.
Acc to Prof. Spencer and Seigelman
“Managerial economics is the integration of
economic theory with business practice for the
purpose of facilitating decision making and
forward planning”.