Nature And Scope Of Business Economics Pdf


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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.

Nature And Scope of Economics

To browse Academia. Skip to main content. By using our site, you agree to our collection of information through the use of cookies. To learn more, view our Privacy Policy. Log In Sign Up. Download Free PDF. Akbar Shaik. Download PDF. A short summary of this paper. In all these cases, the relevant organizations face management decision problems as it seek to accomplish their own goals or objective subject to the constraint they face.

It is important to note that the goals and constraints may differ from case to case, however the basic decision-making process is the same. Economic TheoryEconomic Theory refers to microeconomics and macroeconomics.

Economic theories seek to predict and explain economic behavior based on a model. The organization can solve its management decision problems by application of economic theory and the tools of decision science. Microeconomics -This subject is the study of the economic behaviour of individual decisionmaking units such as individual consumers, resources owners and business firm in the free enterprise systems.

In microeconomics one speaks of demand, supply, equilibrium price, elasticity parameters etc. Macroeconomics -On the other hand, this subject is the study of the total or aggregate level of output, income, employment, consumption, investment and prices for the economy viewed as a whole.

Although the microeconomic theory of firm is the single most important element in the managerial economics, the general macroeconomic conditions of the economy i. Decision SciencesManagerial economics is very closely related to the decision sciences. These use the tools of mathematical economics and econometrics to construct and estimate decision models aimed at determining the optimal behavior of the firm. For ex, these tools help firms decide how much to produce to maximize profits efficiently.

Firms produce more than 80 percent of all goods and services consumed in the U. The remainder is produced by the government and non-profit organizations such as private college, hospitals, museums and foundations. Instead, entrepreneurs enter into long term and broader contracts with labor to perform a number of tasks for a specific wages and fringe benefit.

This kind of contract is much less costly than numerous specific contracts and is highly advantageous both to entrepreneurs and to the workers and the other resource owners. The firm exists in order to save on such transaction costs o By performing many functions within the firm, the firm also saves on sales taxes and avoids price controls and other government regulations that apply only to transactions among firms.

On the basis of that the firm predicts how much of a particular commodity the firm should produce under different forms of market structure or organization. Alternate Theories:The theory of firm has also been criticized as being much narrow and unrealistic. For this reason, broader theories of the firm have been proposed.

This situation is called satisficing behavior. When management tries to maximize certain output parameters it might lead to Principle-agent problem. The dilemma exists because sometimes the agent is motivated to act in his own best interests rather than those of the principal. Common examples of this relationship include corporate management agent and shareholders principal.

One way to solve this problem is to give stock options to management as part of their salary benefits so that they would be motivated to maximize its value by formulating long-term strategies.

For our study, we adopt the theory of firm i. An example of this is the opportunity cost. Calculate a the explicit cost b the implicit costs c the business profit, d the Economic profit e indicate whether the person should open the dry-cleaning store and f calculate value of the firm. This information is essential in order for management to decide how much of a particular good to produce to achieve the goal or objective of the firm profit maximization most efficiently.

The laws of supply and demand are an important beginning in the attempt to answer vital questions about the working of a market system.

Demand Side of the MarketThe demand side can be represented by a market demand curve which shows the amount of commodity buyers would like to purchase at different prices. Demand curves are drawn on the assumption that buyers' tastes, income, the number of consumers in the market and the price of related commodities are unchanged.

Law of DemandThe inverse relationship between the price of the commodity and the quantity demanded per period is referred to as the law of demand i. A decrease in the price of a good, all other things held constant ceteris paribus , will cause an increase in the quantity demanded of the good while an increase in the price of a good, all other things held constant, will cause a decrease in the quantity demanded of the good. Similarly from price reduces from P1 to P0 quantity demanded increases from Q1 to Q0.

Change in demand can happen due to price or due to changes in non-price determinants Tastes and preferences, Income, Prices of related products and Number of buyers. Changes in price result in changes in the quantity demanded. This is shown as movement along the demand curve while changes in non-price determinants is shown as a shift in the demand curve. Some examples of the influence of non-price determinants on demand are as follows: For e. Supply curves are drawn on the assumption of technology and input or resources as such labor, capital and land and prices.

Law of SupplyThe direct relationship between the price of the commodity and the quantity supplied per period is referred to as the law of supply. A decrease in the price of a good, all other things held constant, will cause a decrease in the quantity supplied of the good. An increase in the price of a good, all other things held constant, will cause an increase in the quantity supplied of the good. Similarly from price reduces from P0 to P1 quantity supplied reduced from Q0 to Q1. Similar to demand curve, supply curve also gets affected by the non-price determinants such as Costs and technology, Prices of other goods or services offered by the seller, Future expectations, Number of sellers and Weather conditions.

Equilibrium price is the price that equates the quantity demanded with the quantity supplied. Equilibrium quantity is the amount that people are willing to buy and sellers are willing to offer at the equilibrium price level. An increase or decrease in the demand or supply curve left or right shift of the curves , it defines a new equilibrium point.

A surplus occurs at a price above the equilibrium level. A shortage occurs at a price below the equilibrium level. To see how the equilibrium point changes when the non-price determinants change, we will examine first the effect of income. When income increases, demand curve shifts right while a decrease in income shifts the demand curve left. Similarly, technological improvement will shift the supply curve to the right as firms are able to produce more and sell at the same price.

Those other commodities are called substitutes. A rise in the price of a substitute for a commodity shifts the demand curve for the commodity to the right. For example, a fall in the price of airplane trips to Paris will lead to a rise in the demand for Disney Land tickets at paris even though their price is unchanged. In this case, a change in tastes in favor of a commodity shifts the demand curve to the right. Ultimately, the demand schedule relating columns P and D is replaced by one relating columns P and D1 in the previous table.

On the other hand, the quantity demanded of a commodity declines with the opposite changes. For inferior goods income effect is negative i. These are called Giffen goods -real life examples are very rare for this product class. It shows the quantity of carrots that would be demanded at various prices on the assumption that average household income is fixed at Rs.

When AV income rises from Rs. Similar rise occurs at every other price. Download file. Remember me on this computer. Enter the email address you signed up with and we'll email you a reset link. Need an account? Click here to sign up.

Lesson - 1 Business Economics- Meaning, Nature, Scope and ...

Post a Comment. Question : What do you mean by Business Economics? Also explain the nature and scope of business economics. Business Economics , also called Managerial Economics, is the application of economic theory and methodology to business. Business involves decision-making; and business economics serves as a bridge between economic theory and decision-making in the context of business.

Business Economics: Meaning, Nature, Scope and Objectives | Managerial Economics Nature and Scope

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Lesson - 1 Business Economics- Meaning, Nature, Scope and ...

Business Economics also known as Managerial economics is the study of economic theories, logic and tools of economic analysis that are used in the process of business decision making. Economic theories and techniques of economic analysis are applied in analyze business problems; evaluate business options and opportunities with a view to arriving at an appropriate business decision. Managerial economics is thus constituted of that part of economic knowledge, logic theories and analytical tools that are used for rational business decision making. Managerial economics is that subject which describes how economic analysis is used in taking business decisions. The purpose of Managerial Economics is to show how economic analysis can be used in formulating business policies.

Business Economics is the integration of economic theory with business practice for the purpose of facilitating decision making and forward planning by management. Business Economics , also referred to as Managerial Economics , generally refers to the integration of economic theory with business practice. While the theories of Economics provide the tools, which explain various concepts such as demand, supply, costs, price, competition etc. Business Economics is playing an important role in our daily economic life and business practices. Organisations face many problems on a day to day basis. For example, organisations are always concerned with producing maximum output in the most economical way.

Evolved in the 19th century, the economic studies have become one of the most significant studies of modern days. From a small shop to a country, Economics plays a crucial role in the efficient running of both. No business can flourish without applying the principles of economics. The study of economics is extensive and varied. The nature and scope of economics depend upon the interaction of economic agents and how economies work.


The emphasis in business economics is on normative theory. Business economic seeks to establish rules which help business firms attain their goals, which.


Chapter 1: The Nature and Scope of Managerial Economics

A close interrelationship between management and economics had led to the development of managerial economics. Economic analysis is required for various concepts such as demand, profit, cost, and competition. Managerial economics is a discipline that combines economic theory with managerial practice.

Economic theory and quantitative methods form the basis of assessments on factors affecting corporations such as business organization, management, expansion, and strategy. The Basics of Business Economics.

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