characteristics of business economics

 Some of the main characteristics of business economics are as follows:

1. Micro in Nature:

Business economics is micro-economics in nature. This is due to the study of business economics mainly at the level of the firm.

Generally a business manager is concerned with problems of his own business unit. He does not study the economic problems of an economy as a whole.

2. Basis of Theory of Markets and Private Enterprises:

Business economics largely uses the theory of markets and private enterprise. It uses the theory of the firm and resource allocation of private enterprise economy.

3. Pragmatic in Approach:

Business economics is pragmatic in its approach. It does not involve itself with the theoretical controversies of economics. Yet it does not relegate the realities of business decision-making to the background by bringing in abstract assumptions. While economic theory abstracts from realities of the individual business units to build up its theories, managerial economics takes proper note of the particular economic environment in which a firm works.

4. Normative in Nature:

Business economics is also called normative economics which prescribes standards or norms for policy making. Business economics is prescriptive rather than descriptive in nature. In economic theory, we try to explain economic bahaviour: in business economics, we try to prescribe policies for a business manager which are most likely applied to achieve his objectives. In economic theory, we build ‘laws’ such as the law of Demand and the Law of Diminishing Returns. In business economics we apply these laws for policy planning at the level of a firm.

5. Macro Analysis:

Macro economics which deals with the principles of economic behaviour for the economy as a whole is also useful for business economics. A business unit operates within some economic environment which is in turn shaped by the behaviour of the economy as a whole. Therefore, business manager must know the external forces working over his business environment.

He has to adjust himself to the uncertainties of his business in wise manner. The important aspects of macro economics of special interest to business economist are national income accounting, business cycles, and economic policies of the government in relation to business activities.

relationship of business economics with other branches of knowledge

Business economics and accounting

Managerial economics is closely related to accounting. It is recording the financial operation of a business firm. A business is started with the main aim of earning profit. Capital is invested / employed for purchasing properties such as building, furniture, etc and for meeting the current expenses of the business. Management accounting provides the accounting data for taking business decisions. The accounting techniques are very essential for the success of the firm because profit maximisation is the major objective of the firm.

Business economics and mathematics :

The use of mathematics is significant for managerial economics in view of its profit maximisation goal long with optional use of resources. The major problem of the firm is how to minimise cost , how to maximise profit or how to optimise sales. Mathematical concepts and techniques are widely used in economic logic to solve these problems. Geometry, Algebra and Calculus are the major branches of mathematics which are of use in business economics.

Business economics and statistics :

 Statistics is important to business economics. It provides the basis for the empirical testing of theory. It provides the individual firm with measures of appropriate func­tional relationship involved in decision making. Statistics is a very useful science for business execu­tives because a business runs on estimates and probabilities. Statistical tools are widely used in the solution of business problems. For eg. sampling is very useful in data collection. Business economics makes use of correlation and multiple regression in business problems involving some kind of cause and effect relationship.

Business economics and operations research :

Operation Research provides a scientific model of the system and it helps business economists in the field of product development, material management, and inventory control , quality control , marketing and demand analysis. The varied tools of operational research are helpful to business economists in decision making.

Business economics and theory of decision making :

 The theory of decision making is relatively a new subject that has a significance for business economics. In the process of management such as planning, organising, leading and controlling, decision making is always essential. Decision making is an integral part of today’s business management. A manager faces a number of problems connected with his/her business such as production, inventory, cost, marketing, pricing, investment and personnel.

                Economist are interested in the efficient use of scarce resources hence they are naturally interested in business decision problems and they apply economics in management of business problems. Hence business economics is economics applied in decision making.

difference between economics and business economics

role of business economist

WHO IS A BUSINESS ECONOMIST?

Business economists research, collect information and evaluate the business economic aspects that influence the growth and development of the organization. They are directly answerable to the top management and act in an advisory capacity. They are then known as business economic advisors.

ROLE OF BUSINESS ECONOMIST:-

1) To bring reasonable profit to the company
2)  To study external and internal factors influencing the business
3) To make accurate forecast
4) To establish and maintain contact with individual and data sources.
5) To keep the management informed of all the possible economic trends.
6) To participate in public debates.
7) To earn full status in the business team.
8) Assisting the management towards facilitating effective decision making and forward planning.

significance of business economics

Significance of Business Economics : 
The significance of business economics can be discussed as under :
 1. Business economic is concerned with those aspects of traditional economics which are relevant for business decision making in real life. These are adapted or modified with a view to enable the manager take better decisions. Thus, business economic accomplishes the objective of building a suitable tool kit from traditional economics.

2. It also incorporates useful ideas from other disciplines such as psychology, sociology, etc. If they are found relevant to decision making. In fact, business economics takes the help of other disciplines having a bearing on the business decisions in relation various explicit and implicit constraints subject to which resource allocation is to be optimized.

 3. Business economics helps in reaching a variety of business decisions in a complicated environment. Certain examples are :
(i) What products and services should be produced?
 (ii) What input and production technique should be used?
 (iii) How much output should be produced and at what prices it should be sold?
 (iv) What are the best sizes and locations of new plants?
 (v) When should equipment be replaced?
 (vi) How should the available capital be allocated?

 4. Business economics makes a manager a more competent model builder. It helps him appreciate the essential relationship Characterising a given situation.

 5. At the level of the firm. Where its operations are conducted though known focus functional areas, such as finance, marketing, personnel and production, business economics serves as an integrating agent by coordinating the activities in these different areas.

 6. Business economics takes knowledge of the interaction between the firm and society, and accomplishes the key role of an agent in achieving  its social and economic welfare goals. It has come to be realised that a business, apart from its obligations to shareholders, has certain social obligations. Business economics focuses attention on these social obligations as constraints subject to which business decisions are taken. It serves as an instrument in furthering the economic welfare of the society through socially oriented business decisions.

 Conclusion :
 The usefulness of business economics lies in borrowing and adopting the toolkit from economic theory, incorporating relevant ideas from other disciplines to take better business decisions, serving as a catalytic agent in the process of decision making by different functional departments at the firm’s level, and finally accomplishing a social purpose by orienting business decisions towards social obligations.

WHAT IS THE SCOPE OF BUSINESS ECONOMICS

Scope:
As regards the scope of business economics, no uniformity of views exists among various authors. However, the following aspects are said to generally fall under business economics.
1. Demand Analysis and Forecasting
 2. Cost and production Analysis.
3. Pricing Decisions, policies and practices.
 4. Profit Management.
5. Capital Management.
 These various aspects are also considered to be comprising the subject matter of business economic.

1. Demand Analysis and Forecasting :
  A major part of business decision making depends on accurate estimates of demand. A demand forecast can serve as a guide to management for maintaining and strengthening market position and enlarging profits. Demands analysis helps identify the various factors influencing the product demand and thus provides guidelines for manipulating demand. Demand analysis and forecasting provided the essential basis for business planning and occupies a strategic place in managerial economic.

2. Cost and Production Analysis :
 A study of economic costs, combined with the data drawn from the firm’s accounting records, can yield significant cost estimates which are useful for management decisions. Discovering economic costs and the ability to measure them are the necessary steps for more effective profit planning, cost control and sound pricing practices. Production analysis is narrower, in scope than cost analysis. Production analysis frequently proceeds in physical terms while cost analysis proceeds in monetary terms.

3. Pricing Decisions, Policies and Practices :
 Pricing is an important area of business economic. In fact, price is the genesis of a firms revenue and as such its success largely depends on how correctly the pricing decisions are taken.

4. Profit Management :
 Business firms are generally organised for purpose of making profits and in the long run profits earned are taken as an important measure of the firms success. If knowledge about the future were perfect, profit analysis would have been a very easy task. However, in a world of uncertainty, expectations are not always realised so that profit planning and measurement constitute a difficult area of business economic.

5. Capital Management :
 Among the various types business problems, the most complex and troublesome for the business manager are those relating to a firm’s capital investments. Relatively large sums are involved and the problems are so complex that their solution requires considerable time and labour. Often the decision involving capital management are taken by the top management. Briefly Capital management implies planning and control of capital expenditure.

Conclusion :
 The various aspects outlined above represent major uncertainties which a business firm has to reckon with viz., demand uncertainty, cost uncertainty, price uncertainty, profit uncertainty and capital uncertainty. We can therefore, conclude that the subject matter of business economic consists of applying economic principles and concepts to dea1 with various uncertainties faced by a business firm

WHAT IS BUSINESS ECONOMICS? DISCUSS ABOUT ITS NATURE.

 INTRODUCTION:-
Business economics is, economics applied in decision-making.It interweaves economic principles and business. Business managers apply economic laws and principles while presenting business problems and their ways of solutions. Thus, business economics can be defined as the application of economic analysis to business problems faced by an enterprise. It provides a link between economic theory and the decision sciences in the analysis of managerial decision-­making. It relies heavily on traditional economics and decision sciences.


NATURE:-
Traditional economic theory has developed along two lines; viz., normative and positive.
 Normative focuses on prescriptive statements, and help establish rules aimed at attaining the specified goals of business.
 Positive, on the other hand, focuses on description.It aims at describing the manner in which the economic system operates without staffing how they should operate.
 The emphasis in business economics is on normative theory. Business economic seeks to establish rules which help business firms attain their goals, which indeed is also the essence of the word normative. However, if the firms are to establish valid decision rules, they must thoroughly understand their environment. This requires the study of positive or descriptive theory. Thus, Business economics combines the essentials of the normative and positive economic theory, the emphasis being more on the former than the latter.