Introduction
In this article we shall explore the nature and scope of business economics. Business economics consist two words 1) Business and 2) Economics.
(toc)#Explore the nature and scope of business economics #=(Table of content)
What is Business?
Business is an economic activities. There are lots of type of business such as manufacturing of finished good, construction, trading, assembling of parts, education, health, insurance, transportation, website designing and telecom etc.
Economic activities include production, consumption, distribution, exchange, and inventory accumulation, all of which help in making a profit. Every business aims to maximize its profits. Businesses use these profits to expand and increase their operations.
What is Economics?
Economic this word origin from Greek word 'oikonomia' which means 'household'. Economic was known as 'Political Economy' .The book published on first modern work of economics named "An inquiry into the nature and causes of wealth of nation" usually abbreviated as "The wealth of nation " by Adam Smith.
The fundamental facts:
- Human being have unlimited wants
- but the resources are limited or scare.
Economic is the way that limited resources are distributed to fulfill the unlimited wants and desires of people in a society.
What is an Economy?
The economy is the system where all economic activities, like production, trade, and services.It includes businesses, industries, and trade in a country or region.
Example: India’s economy consists of agriculture, manufacturing, and services like IT.
Meaning of Business Economics
Business Economics refers to applying economic analysis to make business decisions that optimize the use of an organization's limited resources.
"Business economics is the use of economic analysis to formulate business policies "by Joel Dean.
"Business economics is economics applied to decision making "by Hanyes and Mote.
A business decision is a choice or action taken by individuals or groups within a Organisation to achieve goals, solve problems, or improve operations. These decisions are essential for operating a business in effective and efficient manner.this decision impact on the success, growth and profitability.
Difference between normative and positive theory
Economics majorly divided into two parts
- Micro Economics
- Macro Economics
Micro Economics is basically study the behaviour of individual and organisations within in economics system.it focus is small number of or group of units rather than all units combined.
Topics in micro economics
- Consumer behaviour
- Demand and supply
- Production and cost
- Foctors of production
- Place of business
- Price determination in different markes
Macro Economics:
It is mainly study the behaviour of aggregate individuals and organisation such as a country.In other words aggregate behavior of the economy as a whole, rather than individual units. It examines large-scale economic phenomena.
Topics in macro Economics
- Total production of economy
- National income and national output
- Balance of payment and balance of trade
- Banking
- Level of employment rate
- Per capita income
Both the concept plays a crucial role in business Economics
Nature of Business Economics
Business Economics is a science:
- Science is a systematised body of knowledge which establishes cause and effect relationships .
- Business Economics tools integrates as mathematics, statistics and econometrics with economics theory to arrive at appropriate strategies for achieving the goals of Business.
Based on micro Economics:
- Business Economics majorly based on micro Economics theory.
- A business manager applies micro Economics theory like supply and demand, production and cost.
Cooperation with macro Economics :
- A business doesn't work in a vaccum.
- business effects by the external environment of the economy in which it operates such as income and employment level,per capita income and national output.
Normative or perspective in nature:
Economics developed two theories-positive and normative.
Both the concept mentioned above.
Business Economics is an art:
- It is art because involves practical applications of rules and principals.
- A manager take decision to attain the goal of business. Business economic helps to take decision in efficient manner,this decision developed through business economics tools like demand and supply.
Pragmatic in approach:
Microeconomics is extracted and purely theoretical and analysis economic phenomenon under the unrealistic assumptions.
Scope of Business Economics
Scope of business economics is a broad concept. It covers more of the practical problems a manager or firm faces.
There are two categories of business issues to which economic theories can be directly applied, namely:
1. Internal issues or operational issues
(This can be solved using micro economics)
2. External issues or environmental issues
(This can be solved using macro economics)
Micro Economics applied to internal or operational issues:
Operational issue includes all those issues that arise within the organisation and fall within the control of Management. This issues are internal in nature.
The following microeconomic theories deal with most of these issues:
Demand Analysis and Forecasting
Demand analysis studies the purchasing behavior of consumers in the market.
Demand analysis focuses on consumers' income, price-related commodities, consumer preferences, and consumer expectations, etc.
Demand forecasting is the technique of predicting future demand for goods and services based on the past behavior of factors that affect demand. Forecasting helps determine how much to produce and what is in demand.
Demand refers to the quantity of a good or service that the buyers are willing and able to purchase at various prices during a given period of time.
Production and Cost Analysis
Production theory relation refers to the relationship between inputs and output. A business economist has to decide on the optimum size utilization of a firm's resources in an efficient manner. He also has to ensure less wastage of organisation's resources.
Production analysis enables the firm to decide on the choice of appropriate technology and selecting a least-cost input mix to achieve technically efficient way of producing output given the input.
Cost -the meaning of cost in economics and business refers to the monetary value of resources used in the production of goods or services
Cost analysis enables the firm to recognize the behaviour of costs when variables such as output, time period, and labour.
Inventory Management:
Inventory management theories concerned to rules that firms may use to minimize the cost associated with maintaining inventory in the form of work in process, raw material, and finished goods.
Inventory policies help profitability of the firm.
There are a lot of macroeconomic theories available which is given believe:
- Market structure and pricing policies.
- Allocation of capital and investment decisions.
- Profit analysis.
- Risk and uncertainty analysis.
All of the above concepts explaination also available in Bos Economics.
Macro Economics economics applied to external environmental issues:
Environmental issues means these issue which is beyond the power of business and beyond its control.
The conditions and forces that are outside the business and under which the business has to work.
The following are some examples of external forces affecting the business:
(i) Rapid technological changes, such as the entry of new models into the computer industry.
(ii) Changes in the government's own economic policies such as licensing policy, import-export policy, taxation policy, etc.
(iii) Political instability, for example - unstable government, removing the country's finance minister or industry minister from his post and appointing someone else to these posts, etc.
(iv) Social changes, for example - demand for reservation in jobs for people and women belonging to minority communities.
(v) Changes in consumers' hobbies and interests, for example - preferring clothes made from Khadi clothing instead of synthetic clothing; dieting with unsaturated fats-containing oils.
(vi) Dissatisfaction among the workers, which can lead to industrial disputes, for example - demand for more wages and bonuses or better working conditions, etc.
(vii) Increase in market competition due to entry of multinational corporations (MNCs).
Business decision cannot be taken without considering these present and future environmental factors.
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