MEANING AND DEFINITION OF
BUSINESS ECONOMICS
Business economics is concerned with those aspects of economics and its tools of analysis which are used in the process of decision-making of business enterprise. The term 'Business Economics' has been defined as under
"Business
Economics (Business Economics) is the integration of economic theory with
business practice for the purpose of facilitating decision-making and forward
planning by management.
spencer and Siegelman,
"Business
Economics consists of the use of economic modes of thought to analyze business
situations.
Mc. Nair and Meriam,
"Use
of economic analysis is formulating policies is known as Business Economics.'
Joel Dean,
Business economics is not a new discipline or a new branch of economics. It is simply the process of application of the principles, techniques and concepts of economics to solve the managerial problems of a business enterprise. Business economics is also known as- - Managerial Economics, Economics of Enterprise, Applied Economics, Managerial Analysis etc.
CHARACTERISTICS OF BUSINESS
ECONOMICS
1. Micro Economics: Business economics is micro economics in character because it studies the problems and principles of an individual firm or industry.
2. Normative Economics: Business economics belongs to normative economics. Business economics is concerned with what business should do under particular circumstances.
3. Pragmatic: Business economics is pragmatic. It tries to solve the business problems in their day-to-day functioning.
4. Use of Theory of Firm: Business economics use the economic concepts and principles related with firms. It includes the study of profit theories and analysis of demand-supply, Cost-revenue, equilibrium, pricing, costing, sale and business forecasting etc.
5. Help of Micro Economics: Though business economics is micro economics in character, but it takes the help of macro economics also because it needs an understanding of the circumstances and environment in which an individual firm or an industry has to work.
6. Main Aim to help the Management: Main aim of business economics is to help the management in taking decisions and preparing plans and policies for the future.
7. Co-ordinating Nature: Business economics lies on the border of traditional economics and business management and act as a bridge between two branches of knowledge. It integrates economic theories with business practice. Thus it has co-ordinating nature.
SCOPE OF BUSINESS ECONOMICS
 |
| Scope of Business Economics |
Business economics is the process of application of economic principles, techniques, and concepts etc., to solve managerial problems of a business enterprise. It helps the management in efficient and economical use of scarce resources. Scope of business economics is narrower than that of pure economic theory because it includes micro economics only. Scope of business economics includes the following subjects:
1. Theory of Demand: Demand forecasting is an important part of business decision-making and preparing production schedule. Demand analysis helps management in identifying various factors that influence the demand for the products of the firm. Demand theory is the study of the behaviour of consumers.
2. Theory of Production: Production Theory explains how average and marginal costs change with the change in production. How does total production increase, when the input of one factor is increased keeping other factors constant? How can one factor of production substitute another, when all the factors are increased simultaneously? How can the optimum size of production be obtained?
Thus, production theory helps in determining the size of the firm and the level of production.
3. Theory of Exchange Or Price Theory: Theory of exchange (popularly known as price theory) explains how the prices are determined under different types of market conditions? How price discrimination is made? How and to what extent advertisement can be helpful in increasing sales? Thus, Price Theory can be helpful in determining theories of price and production.
4. Theory of Profit: Profit Planning and Management are necessary for improving earning efficiency of the firm. Profit management necessities that most efficient technique should be used for predicting future. Risks should be minimized as far as possible.
5. Theory of Capital and Investment: Theory of Capital and Investment explains the following important issues
i. Selection of most suitable investment project ;
ii. Most efficient allocation of capital;
iii. Assessing the efficiency of capital;
iv. Minimizing the possibility of Under-capitalization or Overcapitalization.
6. Environmental Issues: There are certain issues of macro economics also that form a part of business economics. These issues relate to the general business, social and political environment in which a business and industrial firm has to operate. A firm cannot have any control over these factors.
NATURE OF BUSINESS ECONOMICS
Nature of business economics may be explained in the following:
1. Business Economics is a Science: Science is that branch of systematic knowledge, which establishes a relationship between the causes and effects of an event.
From this point of view, business economics is also a science because-it establishes a relationship between causes and effects. It studies the effect of a change in price and marketing factors on
demand of a particular product. It also studies the effects of the plans, policies and programmes of a firm on its sales and profit.
It is clear Business economics is a science but it must remember the business economics is not a stable science. It is a social science under which firms behaviour is studied.
2. Business Economics is a Normative Science: Normative science studies what should be done. From this point of view, business economics is normative science because it suggests what should be done under particular circumstances. It determines the goals of the enterprise and then develops ways to achieve these goals.
3. Business Economics is an Art: Art is that branch of systematic knowledge, which develops the best possible way for the attainment of a particular object.
From this point of view, business economics may also be called an art. It also develops the best way of doing things. It helps management in the efficient utilization of limited resources of the firm. It helps in selecting the best alternative from among different alternatives. It helps management in the achievement of organizational objectives.
4. Business Economics is a Micro Economics: Micro Economics is concerned with smaller parts of the economy. It studies the trends, conditions and problems of a particular business firm.
From this point of view, business economics is micro-economics in character because it is concerned with the problems of an individual business firm.
IMPORTANCE OR UTILITY OF BUSINESS ECONOMICS
 |
| Importance or Utility of Business Economics |
Generally, the success of a business depends on the appropriate decisions taken by the management within an appropriate time. In an environment of uncertainty and risk, decision-making and forward planning is a complicated process. Under such conditions, techniques of economic analysis arc useful in taking appropriate decisions and forward planning.
Thus, business economics plays an important role in the decision-making process. The importance of business economics in a business and industrial enterprise are as follows:
1. Helpful in Planning and Decision-making: Business economics helps the management in making appropriate decisions and efficient forward planning. It helps the management of a firm to make the most efficient and economic utilization of the scarce resources available to the firm. Important decisions for firm regarding demand, production, pricing, costing etc. are taken with the help of the various tools of business economics.
2. Helpful in Reducing Uncertainty: Generally, the business manager has to work in an environment of uncertainty. Although, these uncertainties cannot be fully extinguished yet these can be minimized with the help of business economics.
3. Helpful in Determining Business Policies: A business manager has to formulate different policies for the smooth functioning of a firm. Theories of demand, production, price, profit etc. helps the management in determining the business policies.
4. Estimating Economic Relationship: Business economics helps in business planning and decision-making by estimating the economic relationship between different business factors, such as income, the elasticity of demand, profit analysis, cost volume etc.
5. Helpful in Understanding of External Environment: Business economics helps the management in the understanding of external factors which the firm cannot have any control. Therefore, the plan, policies and programmes of the firm should be adjusted in the light of these factors.
6. Helpful in co-ordination between Theory and Practice: Business economics is very helpful in bringing co-ordination between theories and applications. It moulds the economic theories in conformity with actual business practice and situations so that these theories can be used successfully by a business firm in taking decisions and forward planning.
7. Helpful in Predicting Economic Quantities: Business economics is very helpful for the management in predicting various economic variables, such as, cost, profit, demand, production, price etc. The economic analysis helps to make predictions about economic events and thus future should be well predicted in the light of these quantities.
8. Inducing the Social Responsibility of Management: Business economics induces management towards their social responsibility. It induces the management to make such policies which lead to the optimization of available resources, employment generation, consumer's satisfaction, labour welfare and economic development of the country.
DIFFERENCE BETWEEN ECONOMICS AND BUSINESS ECONOMICS:
|
S. no |
Basis of Difference |
Economics |
Business Economics |
|
1 |
Meaning |
Economics is the study of economic activities of human being related with economic welfare. |
Business economics is the practical application of economic theories in the field of management. |
|
2 |
Nature |
Economics is both positive and normative science as well as art. |
Business economics is normative science and art. |
|
3 |
Character |
Economics is both micro and macro in character. |
Business economics is micro in character. |
|
4 |
Scope |
Scope of economics is wide. It includes business economics also |
Scope of business economics is limited. It is part of the economics. |
|
5 |
Decision making |
Economics studies only theoretical aspects. It is not related to decision making and solution of problems. |
Business economics play an important role in decision making and the solution of economic problem. |
|
6 |
Base of study |
Utility is the base of study of economics. |
Profit is the base of the study of business economics. |
|
7 |
Theoretical and Practical |
Economics emphasizes upon the theoretical study of economic principles. |
Business economics emphasizes upon the practical application of economics principle. |
|
8 |
Economic and Non-Economic aspects |
Economics studies only the economic aspects. |
Business economics studies economic as well as non-economic aspects. |
|
9 |
Evolution |
Economics is a very old concept. |
Business economics is relatively a new concept and is still at evolutionary stage. |
|
10 |
Coverage of study |
Economics studies the problem of both the firm and individuals. |
Business economics studies the problem of the firm only. |
