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THE ECONOMICS AND

BUSINESSENVIRONMENT

Sesi 1

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 Outline

1.Business Economics
2.Economics and Business Decision Making
3.The Business Environment

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 Business Economics

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

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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 2. It study the whole economy
economy 3. It gives total picture of the economy
3. Partial picture of the economy
4. It covers a wider scope
4. It covers limited area of study 5. It gives us birds eye view of the economy
5. It gives worms eye view of the economy Macroeconomic Data
Microeconomic Data
1. GDP Growth
1. Price of one comodity 2. CPI
2. Demand on one comodity 3. Exchange rate
Some Key Idea In Economics
1. Idea 1 : Decision Making Involves Trade-Offs
2. Idea 2 : The Cost of Something Is What You Give Up to Get It
3. Idea 3 : Rational People and Businesses Think at the Margin
4. Idea 4 : People and Businesses Respond to Incentives
5. Idea 5 : Trade Can Make Everyone Better Off
6. Idea 6 : Markets Can Be a Good Way to Organize Economic Activity
7. Idea 7 : Governments Can Sometimes Improve Market Outcomes
• Idea 8 : An Economy’s Standard of Living Depends on Its Ability to Produce Goods
and Services

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Sampelof a case study ,”
Rational People and Businesses
Think at the Margin”

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 what is business?
• Business is an activity. It involves using inputs, which are broadly described as land, labour and
capital, and
• These outputs could be goods such as TVs, food, books, clothes, furniture, bricks, cars, glass and
so on or services such as banking, insurance, accounting, tourism, repairs, medical care,
entertainment, transportation, hotels, restaurants, etc
• Business activity is carried out for different reasons. In some cases, the primary aim of a business
is to ensure that the money received from selling outputs is greater than the cost of producing
these outputs . Business focus on making a profit

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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.
• Some example of theory that are used in analysist in business
1. Type of market
2. Equilibrium in market
3. Short Run and Long Run Analysis
4. Cost Production
5. Policy : Fiscal and monetery

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Characteristic features of business economics
• 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.

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Difference between economics and business economics

Economics Business Economics

1. It is more comprehensive and wider in 1. It is too narrow and has limited scope
scope
2. It deals with the application of
2. It is concerned with body of principles economic principles to the problems
faced
3. It includes both micro and macro 3. It is micro in nature
economics

4. The scope of assumptions are limited as

4. It is based on of assumption it is concerned with application of
theories
5. It is both positive and normative 5. It is mainly a normative science
science
6. It deals with the problems of a firm only
6. It discusses general economic
problems 7. Decision making and forward planning
is the main function of the business
7. Model building is the main function of
the economist economist
Role of a business economist
• 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.

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Economics and Business
Decision Making

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 ECONOMICS: THE SCIENCE (OR ART) OF DECISION MAKING
• The Economic Problem: Scarce Resources and Unlimited Wants and Needs
• The Effect of Human Decision Making on Businesses
• Value for Money

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 BUSINESS DECISION MAKING
• Investment
• Growth and Expansion
• Acquiring and Keeping Customers

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The Business Environment

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THE TRANSFORMATION PROCESS
• Decision making will be a recurring theme throughout our • Factors of Production
journey into Business Economics.
1. Land
• Successful business is all about making decisions that help 2. Labor
meet aims and objectives, and, as we have seen,
economics can be seen as being a ‘science’ of decision
3. Capital
making. 4. Enterprise
• We have seen how business activity involves taking a
series of inputs and producing an output. The business • Adding value
might provide the output (goods and services) to
someone who consumes the good or service (the final added value the difference between the cost
consumer). of factor inputs into production and the
amount consumers are prepared to pay (the
• This is referred to as B2C business. B2B business is the
term used when businesses sell goods or services to value placed on the product by consumers)
another business, who may either act as an intermediary
in getting goods and services to the final consumer, or
who will do something to those goods and services before
selling them on to a final consumer.
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THE PESTLE FRAMEWORK
• Change will be happening all the time in any • Political
business and how it adapts to this change will
• Economic
be an important part of the extent to which the
business is a success. • Social
• In responding to change, there are some
factors which the business will have some
• Tecnological
control over and others which it will not. • Legal
• The business can have some control over the
inputs it buys and how it combines those inputs • Environmental
to produce its outputs.
• However, there are a number of external
factors over which it has very little control, but
to which it has to respond and react.

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SHAREHOLDER VALUE AND STAKEHOLDERS
• shareholder value the overall value delivered to the owners of business in the form of cash generated and the
reputation and potential of the business to continue growing over time
• Investment decisions can be made that will secure short-term profit growth quickly, but which might damage the
future capacity of the business to compete and survive in the longer term.
• Poor decision making can lead to damage in lots of ways, for example signing up a celebrity to endorse products might
help boost sales and earnings in the short term, but could lead to longer-term damage if the celebrity happens to get
involved in something that affects the reputation of the business.
• A business could dispose of waste at very low cost and secure short-term profit gains, but if that method of waste
disposal damages the environment then the longer-term earnings generation potential of the business could be
affected in a negative way. In the two examples given, shareholder value could potentially decline in the future

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Problem: Concept and Problem
Questions

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Thank you

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