Business Economics

Meaning
Business Economics is nothing but the application of economics theories and
principles management. It deals with decision making at the level of a business
firm. Business managers use economic modes of thought to analyse business
situation and to make decisions. The Primary function of a business executive is
decision making and forward planning. Business Economics is now Called
Business economics, also known as managerial economics, applies economic
“Managerial Economics”.
theory and methodology to business decision-making. It involves analyzing a firm's
internal and external environment to make informed decisions about production,
pricing, marketing, and other crucial aspects of business operations. Essentially, it
bridges the gap between economic theory and practical business challenges.
 Nature of Business Economics

Micro in Nature Pragmatic in Approach Normative Science A Science and Art

This is because business Business firms employ scientific

It is normative study, it prescribes
economics is the study mainly at It is Pragmatic approach in it’s methods of observation, reasoning
standards or norms for policy
the level of business firm. The approach; it does not involve itself and Verification in analysing
making. It is Prescriptive rather
appropriate title for micro in Theoretical controversies. It is business problems. Demand
than descriptive in nature. In
economics is Price Theory. s. It’s the application of economics forecasting is a scientific analysis.
economics theory, we try to explain
knowledge enables businessmen analysis to decision making. Business economics may also be
economic behaviour.
to take improved decision in called an art because it helps
demand analysis. management in the efficient
Study of Macro Environment utilisation of scarce resources

Business firms operate under macro economic

environment. The macro Economic environment
relating to national income, business cycles,
economic policies of the government in relation to
business are important to managers
 Scope of Business Economics

Demand Analysis and Forecasting Cost Analysis

A Business firm is a collection of factors of Firms attempt at minimisation of production

production. It converts raw Materials into costs. Cost estimates are essential For decision
finished products. These products are to making. Managers know the causes for
be sold in the market. Hence the firm has variations in costs. There is an element of
to estimate the demand for its product. uncertainty because all causes are not known
Production is more often in anticipation of in advance. Cost control is essential for pricing
demand. A forecast of future sales practices and profit planning.
becomes important. On of basis of
demand forecasts the firm will prepare
schedules for production and for
employing resources.
 Scope of Business Economics

Pricing Policies Profit Management

The process of the products that the firm The chief aim of a firm is to make maximum
sells brings income to the firm. Profits are profits. Profits depends upon the Difference
the difference between total income and between revenue and costs. Cost and
total costs. The success of the firm revenues vary for a number of reasons. There
therefore depends on correct price fixing. is, therefore, uncertainty in profit planning.
Pricing policies cover price determination Under profit management, we study the
in various market forms. Pricing methods, nature of profit, pofit policies, planning and
differential pricing, productive pricing and profit techniques like Break even analysis.
price forecasting.
 Scope of Business Economics

Capital Management

Capital investments are the most complex problems. Capital management

Implies planning and control of the capital expenditure. The main topics under
capital management are cost of capital, rate of return and selection of project.
 Micro Economics

• The word ‘micro’ means a millionth part. Micro economics is therefore the study of small parts
of the economy.
• It studies the economic motives and behaviour of individual consumers and producers and
the principles involved in organising and operating individual firms and industries. It studies
how individual consumer, firm and industry attain equilibrium or optimum positions. Micro is
derived from the Greek word ‘micros’ meaning small. It seeks to explain the market for
individual commodities and individual factors of production.
• It also tries to explain price determination of individual commodities and factors of
production. It lays down the conditions of equilibrium of firms and industries. The analysis is
based on the assumption of full employment of resources. The subject matter of micro
economics may be summed up in four basic questions.
• They are: (i) what goods shall be produced and in what quantities (ii) How they shall be
produced (iii) to whom goods shall be produced (iv) whether production and distribution of
goods is efficient. All these questions are answered by the Price Theory. The contents of price
 Macro Economics

• Macro Economics: Macro economics is the study of the economic system as a whole.
• It studies not individual economic units like the consumer or firm or industry but the whole
economic system.
• It deals with the aggregates the national output, aggregated employment, total
consumption, total investment and the general price level. It establishes a functional
relationship between these aggregate variables.
• Gardner Ackley says:”Macro economics concerns with such variables as the aggregate volume
of output of an economy, with the extent to which its resources are employed, with the size of
national income and with general price level”.
 Basic Economic Problems

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Society has to decide

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• Society and state need to

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take decision on how much

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whether to produce guns

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to produce?

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• This econmic problem can be or butter, machines

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ansered by taking into

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(capital goods) or cell

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consideration the number of

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phone (consumer goods).
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people and available

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resources in an economy.

ECONOMIC • Society has to decide whether the goods and

• A society cannot satisfy wants of all and PROBLEMS services are to be produced using labour
intensive techniques or capital intensive
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thus it has to take an important techniques. 

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decision ‘for whom’ it should produce.  • This choice would depend on the availability of

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different factors of production (i.e. labour and

• It has to decide on who should get how
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capital) and their relative prices. 
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much of the total output of goods and

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• For eg. Cotton can be produced using handloom,

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services i.e. How to distribute goods power looms or automatic looms. Production

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and services among members of
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with handlooms involves use of labour and

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society. production with automatic loom involves use of
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more machines and capital. 
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• It is in the society’s interest to use those

 TECHNOLOGIC
AL
Advances and developments in technology that
MARKET ECONOMIC
• Economic: Consumers’ buying behaviour and
their ability to purchase a particular product or
service. These include economic matters such
can affect the demand for a product or service.

FORCES
as changes in income, inflation, exchange
rates, and interest rates.

DEMOGRAP COMPETITIVE
MARKET FORCES ARE A POWERFUL DRIVER OF THE The influence of competition from other

HIC
Population characteristics such as age, gender,
race, ethnicity, socio-economic status, and
ECONOMY, SHAPING THE PRODUCTION, PRICING, AND companies offering similar products and
services. These look at the competitive climate
DISTRIBUTION OF GOODS AND SERVICES.
lifestyle choices.
of a particular area, considering factors such as

Understanding mARKET FORCES AND THEIR IMPACT ON competitive pricing, promotional strategies,
BUSINESSES IS CRUCIAL FOR ENTREPRENEURS, and barriers to entry.
INVESTORS, AND POLICYMAKERS ALIKE.

SOCIAL AND BY STAYING INFORMED ABOUT MARKET TRENDS AND POLITICAL AND
The influence of the public perception on the

CULTURAL
products and services of a business. These
ADAPTING TO CHANGING CONDITIONS, BUSINESSES
CAN STAY COMPETITIVE AND THRIVE IN A CONSTANTLY LEGAL
• Political and legal: Regulations, laws and
government policies that can influence
could be anything from changing population
EVOLVING MARKETPLACE; WHILE INVESTORS CAN
sizes and developing trends, to traditional how products or services are created and
MAKE INFORMED DECISIONS.
values, beliefs, ethics, and customs held by a marketed.

group of people.