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Week 1 Introduction To Business Economics

1. The document introduces business economics and its relationship to economics, discussing topics like demand, production, costs, pricing, and profit. 2. It distinguishes business economics from economics, noting that business economics has a narrower scope and focuses on applying economic principles to business problems and decision-making. 3. The roles of a business economist are to identify business problems, provide quantitative analysis for decisions and planning, and respond to market changes.

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32 views

Week 1 Introduction To Business Economics

1. The document introduces business economics and its relationship to economics, discussing topics like demand, production, costs, pricing, and profit. 2. It distinguishes business economics from economics, noting that business economics has a narrower scope and focuses on applying economic principles to business problems and decision-making. 3. The roles of a business economist are to identify business problems, provide quantitative analysis for decisions and planning, and respond to market changes.

Uploaded by

walsonsanaani3rd
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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INTRODUCTION

TO
BUSINESS 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

Economics is a logic of choice. It teaches the art ofrational decision making in


economizing behavior todeal with the problem of scarcity.
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 andmanagerial problems.
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”
• New discipline and of recent origin

• It is a highly specialized and separate branch of economics

• Micro in nature

• It is normative science which is goal oriented and prescriptive science

• It provides solutions to the problems

• It is a study of decision making

• It is a study of allocation of resources

• It deals with economic behavior of the firm

• It also studies various macro economic concepts like GNP, GDP, NNP, inflation etc

• It is conceptual.
THE DIFFERENCE BETWEEN ECONOMICS AND BUSINESS ECONOMICS

ECONOMICS BUSINESS ECONOMICS


1. It is more comprehensive and wider in scope 1. It is too narrow and has limited scope
2. It is concerned with body of Principles 2. It deals with the application of economic
principles to the problem faced
3. It includes both micro and macro economics 3. It is micro in nature
4. It based on no of assumption 4. The scope of assumptions are limited as it is
concerned with application of theories.
5. It is both positive and normative science 5. It mainly a normative science
6. It discusses general economic problems 6. It deals with the problem of a firm only
7. Model building is the main function of the 7. Decision making and forward planning is the
economist main function of the business economist
The term scope refers to the area of study boundaries width of the subject and subject .

Some of the important topics covered in this subject are:

1.Objective of a firm

2.Consumption analysis with special emphasis on demand analysis and forecasting

3.Production and cost analysis

4.Pricing decision policies and practices

5.Profit Management

6.Capital Management

7.Market structure and condition


1.To integrate economic theory with business practice

2.To apply economic concepts and principles to solve business problems

3.To employ most modern instruments and tools to find solutions to business problems

4.To make optimum use of scarce resources of a firm

5.To help in making overall development of a firm

6.To help the manager to understand the intricacies of business problems and to make
right decision at the right time
The term role refers to the behavior and action exhibited by a person in a given situation or
environment.

1. To identify various business problems their causes and suggest remedial measures.

2. To provide a quantitative base for decision making and forward planning

3. To act as a thinker.

4. To act as economic advisor to the firm.

5. To respond to the dynamic changes taking place in market situation.

6. To conduct various types of research studies.

7. To synthesize various policies.

8. To have complete information about the environment factors.


Two important functions of a business economist are
1.Decision making

2.Forward Planning

Decision making is essentially a process of selecting the best out of many


alternative opportunities that are open to management. It is a management
function and part of business activity.

Forward planning refers to planning in advance for the future that is deciding
future course of action of a firm. A business economist must be sufficiently
intelligent enough to thinking advance prepare a sound plan take all possible
precautionary measures to meet all types of challenges of the future business
Prof. Ragnar Frisch coined these two terms in economics These two terms are derived from Greek
words MIKROS meaning small and MAKROS means large.

Micro Economics

Micro economics is that branch of economics that deals with the study of
the behavior and action of only individual economic unit in detail.

Macro Economics

Macro economics is that branch of economics which deals with the study
of aggregate or average behavior of the entire economy.
Difference between Micro and Macro economics

Micro economics Macro economics

1. It studies the small part of the economy 1. It studies the large part of the
economy

2. It is a study of individual units of the economy 2. It study the whole economy

3. Partial picture of the economy 3. It gives total picture of the


economy
4. It covers limited area of study 4. It covers a wider scope

5. It gives worms eye view of the economy 5. It gives us birds eye view of the
economy
Significance of Micro economics

• It explains price determination and allocation of resources

• It has relevance in business decision making

• It serves as a guide for business planning

• It serves as a basis for prediction

• It teaches the area of economizing

• It is useful in determination of economic policies of the government

• It serves as the basis for welfare economics

• It explains the phenomena of International trade


Limitation of Micro Economics

 Theories are abstract

 Theories are static based on ceteris paribus that is assuming other things being
equal

 It assumes laissez faire policy

 It cannot explain the functioning of the economy at large

 Unrealistically assumes full employment


IMPORTANCE OF MACRO ECONOMICS TO MANAGERS

• It explains the working of the economic system as a whole.

• It examines the aggregate behavior of the macroeconomic entities like firms


households and the government.

• Its knowledge is indispensable for policy makers for formulating macro


economic policies such as monetary policy ,fiscal policy etc.

• Useful in preparing economic plans

• Its study facilitate overall purpose of control and prediction.


Limitation
 It ignores individual behaviors

 Tendency of excessive generalization.

 Not easy to get correct and complete measures of economic aggregates

 It is based on rough indicators, therefore predictions are not fully reliable.

 Macro level policies may not produce the same results at micro levels.

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