Lesson - 1 Business Economics- Meaning, Nature, Scope and significance Introduction and meaning : (Author : Dr. M.S. Khanchi) Business Economics, also called Managerial Economics, is the application of economic theory and methodology to business. Business involves decision-making. Decision making means the process of selecting one out of two or more alternative courses of action. The question of choice arises because the basic resources such as capital, land, labour and management are limited and can be employed in alternative uses. The decision-making function thus becomes one of making choice and taking decisions that will provide the most efficient means of attaining a desired end, say, profit maximation. Different aspects of business need attention of the chief executive. He may be called upon to choose a single option among the many that may be available to him. It would he in the interest of the business to reach an optimal decision- the one that promotes the goal of the business firm. A scientific formulation of the business problem and finding its optimals solution requires that the business firm is he equipped with a rational methodology and appropriate tools. Business economic meets these needs of the business firm. This is illustrated in the following presentation. Economic Theory and Methodology Business Economic Application of Economic Theory and Methodology to solving Business problems Decision problems in Business
Optimal Solution to Business Problems it may be that business economics serves as a bridge between economic theory and decision-making in the context of business. According to Mc Nair and Meriam, Business economic consists of the use of economic modes of thought to analyse business situations. Siegel man has defined managerial 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. We may, therefore, define business economic as that discipline which deals with the application of economic theory to business management. Business economic thus lies on the borderline between economic and business management and serves as a bridge between the two disciplines. Nature of Business Economics : Traditional economic theory has developed along two lines; viz., normative and positive. Normative focuses on prescriptive statements, and help establish rules aimed at attaining the specified goals of business. Positive, on the other hand, focuses on description it aims at describing the manner in which the economic system operates without staffing how they should operate. The emphasis in business economics is on normative theory. Business economic seeks to establish rules which help business firms attain their goals, which indeed is also the essence of the word normative. However, if the firms are to establish valid decision rules, they must thoroughly understand their environment. This requires the study of positive or descriptive theory. Thus, Business economics combines the essentials of the normative and positive economic theory, the emphasis being more on the former than the latter. 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. 2. 3. 4. 5. Demand Analysis and Forecasting Cost and production Analysis. Pricing Decisions, policies and practices. Profit Management. Capital Management.
These various aspects are also considered to be comprising the subject matter of business economic. 1. Demand Analysis and Forecasting : A business firm is an economic organisation which transform 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...
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