Business Economics- Meaning, Nature, Scope and significance
Introduction
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.
Economic theories, economic principles, economic laws, economic equations, and economic
concepts are used for decision making. Business Economics may be defined as the use of
economic analysis to make business decisions involving the best use of an organization’s scarce
resources.
Business economics is, thus, an applied economics. Economics is the study of human beings
(e.g., consumers, firms) in producing and consuming goods and services in the midst of scarcity
of resources. Managerial or business economics is an applied branch of organising and allocating
a firm’s scarce resources to achieve its desired goals.
Managerial economics or business economics is economics applied in decision-making. Business
economics, thus, 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.
Features of Business Economics :
Following are the main characteristic features of Business Economics which constitute the nature
and subject matter.
1) Business Economics means the application of economic concepts, theories and principles to
the business activities.
2) Business Economics is related with the micro-economics. It is micro in nature. It is mainly
related with the problems of individual unit.
3) Also it deals with the macro-economics. Manager of the farms has to study the macro
economic concepts like National Income, Business Cycles, Labour Relations, Government
, Policies on taxation, budget, monetary issueses and international trade etc. By studying these
macro economic concepts Manager of a business firm takes the decisions in respect of his firm.
4) Managerial economics deals with the theory of firm which is pure theory of economics.
Economic principles of this theory are applied to his firm to decides profit. It means that
managerial economics deals with the theory of distribution
Nature of Business Economics
Business Economics is a Science: Science is a systematized body of knowledge which
establishes cause and effect relationships. Business Economics integrates the tools of decision
sciences such as Mathematics, Statistics and Econometrics with Economic Theory to arrive at
appropriate strategies for achieving the goals of the business enterprises. It follows scientific
methods and empirically tests the validity of the results.
Based on Micro Economics: Business Economics is based largely on Microeconomics. A
business manager is usually concerned about achievement of the predetermined objectives of his
organisation so as to ensure the long-term survival and profitable functioning of the organization.
Since Business Economics is concerned more with the decision making problems of individual
establishments, it relies heavily on the techniques of Microeconomics.
Incorporates elements of Macro Analysis: A business unit does not operate in a vacuum. It is
affected by the external environment of the economy in which it operates such as, the general
price level, income and employment levels in the economy and government policies with respect
to taxation, interest rates, exchange rates, industries, prices, distribution, wages and regulation of
monopolies. All these are components of Macroeconomics. A business manager must be
acquainted with these and other macroeconomic variables, present as well as future, which may
influence his business environment.
Business Economics is an art: it involves practical application of rules and principles for the
attainment of set objectives.
Use 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 in the
backdrop of a private enterprise economy.
Pragmatic in Approach: Microeconomics is abstract and purely theoretical and analyses
economic phenomena under unrealistic assumptions. In contrast, Business Economics is
pragmatic in its approach as it tackles practical problems which the firms face in the real world.
Interdisciplinary in nature: Business Economics is interdisciplinary in nature as it incorporates
tools from other disciplines such as Mathematics, Operations Research, Management Theory,
Accounting, marketing, Finance, Statistics and Econometrics.
Normative in Nature: Economic theory has developed along two lines – positive and normative.
A positive or pure science analyses cause and effect relationship between variables in an
Introduction
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.
Economic theories, economic principles, economic laws, economic equations, and economic
concepts are used for decision making. Business Economics may be defined as the use of
economic analysis to make business decisions involving the best use of an organization’s scarce
resources.
Business economics is, thus, an applied economics. Economics is the study of human beings
(e.g., consumers, firms) in producing and consuming goods and services in the midst of scarcity
of resources. Managerial or business economics is an applied branch of organising and allocating
a firm’s scarce resources to achieve its desired goals.
Managerial economics or business economics is economics applied in decision-making. Business
economics, thus, 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.
Features of Business Economics :
Following are the main characteristic features of Business Economics which constitute the nature
and subject matter.
1) Business Economics means the application of economic concepts, theories and principles to
the business activities.
2) Business Economics is related with the micro-economics. It is micro in nature. It is mainly
related with the problems of individual unit.
3) Also it deals with the macro-economics. Manager of the farms has to study the macro
economic concepts like National Income, Business Cycles, Labour Relations, Government
, Policies on taxation, budget, monetary issueses and international trade etc. By studying these
macro economic concepts Manager of a business firm takes the decisions in respect of his firm.
4) Managerial economics deals with the theory of firm which is pure theory of economics.
Economic principles of this theory are applied to his firm to decides profit. It means that
managerial economics deals with the theory of distribution
Nature of Business Economics
Business Economics is a Science: Science is a systematized body of knowledge which
establishes cause and effect relationships. Business Economics integrates the tools of decision
sciences such as Mathematics, Statistics and Econometrics with Economic Theory to arrive at
appropriate strategies for achieving the goals of the business enterprises. It follows scientific
methods and empirically tests the validity of the results.
Based on Micro Economics: Business Economics is based largely on Microeconomics. A
business manager is usually concerned about achievement of the predetermined objectives of his
organisation so as to ensure the long-term survival and profitable functioning of the organization.
Since Business Economics is concerned more with the decision making problems of individual
establishments, it relies heavily on the techniques of Microeconomics.
Incorporates elements of Macro Analysis: A business unit does not operate in a vacuum. It is
affected by the external environment of the economy in which it operates such as, the general
price level, income and employment levels in the economy and government policies with respect
to taxation, interest rates, exchange rates, industries, prices, distribution, wages and regulation of
monopolies. All these are components of Macroeconomics. A business manager must be
acquainted with these and other macroeconomic variables, present as well as future, which may
influence his business environment.
Business Economics is an art: it involves practical application of rules and principles for the
attainment of set objectives.
Use 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 in the
backdrop of a private enterprise economy.
Pragmatic in Approach: Microeconomics is abstract and purely theoretical and analyses
economic phenomena under unrealistic assumptions. In contrast, Business Economics is
pragmatic in its approach as it tackles practical problems which the firms face in the real world.
Interdisciplinary in nature: Business Economics is interdisciplinary in nature as it incorporates
tools from other disciplines such as Mathematics, Operations Research, Management Theory,
Accounting, marketing, Finance, Statistics and Econometrics.
Normative in Nature: Economic theory has developed along two lines – positive and normative.
A positive or pure science analyses cause and effect relationship between variables in an
