Module 1: Introduction to Business Economics – Detailed Notes for BBA/B.Com Students

Chapter 1 NATURE AND SCOPE OF BUSINESS ECONOMICS

UNIT 1 INTRODUCTION



1.0 INTRODUCTION

1.0.0 What is Economics about?
 Originated from the Greek word ‘Oikonomia’ which means ‘household’.
 Till 19th century Economics was known as ‘Political Economy’.
 First Modern work of Economics by Adam Smith is named as ‘An Enquiry into
the Nature and Causes of the ‘Wealth of Nations’ (1776) abbreviated as ‘The
Wealth of Nations’.
 There are two fundamental facts that can be concluded with the concept of
Economics :
(i) Human beings have unlimited wants ;and
(ii) The means to satisfy these unlimited wants are relatively scarce forms
the subject matter of Economics.

1.0.1 DEFINITION OF ECONOMICS
 Economics is the study of the processes by which the relatively scarce
resources are allocated to satisfy the competing unlimited wants of human
beings in a society.
 This definition of Economics, with the narrow focus on using the relatively
scarce resources to satisfy human wants is domain of modern neo classical
micro economic analysis.



1.0.2 MEANING OF BUSINESS ECONOMICS
 Decision Making refers to the process of selecting an appropriate alternative
that will provide the most efficient means of attaining a desired end ,from
two or more alternative courses of action.
 It means evaluation of feasible alternatives, rational judgment on the basis
of information and choice of particular alternative which the decision maker
finds as most suitable.
 As we know the question of choice arises because our productive resources
such as land, labour, capital and management are limited and can be
employed in alternative uses .Therefore more efficient alternatives must be
chosen and less efficient alternatives must be rejected.
 Business Economics also reffered as Managerial Economics refers to the
integration of economic theory with business practice.
 Business Economics applies tools of economics to make business decision
making.

,  It is Applied Economics that fills the gap between economic theory and
business practice.
 It has close connection with Economic Theory (Micro and Macro Economics),
Operation Research, Statistics, Mathematics and the Theory of Decision
Making.
 Business Economics is also useful for managers of ‘not-for -profit’
organisations such as NGO and Voluntary Organisations.




1.1 DEFINITION OF BUSINESS ECONOMICS
 Business Economics may be defined as the use of economic analysis to make
business decisions involving the best use of an organisation’s scarce resources.
 Joel Dean defined Business Economics in terms of the use of economic analysis
in the formulation of business policies.
 Business Economics is essentially a component of Applied Economics as it
includes application of selected quantitative techniques such as linear
programming ,regression analysis ,capital budgeting ,break even analysis and
cost analysis.

1.2 NATURE OF BUSINESS ECONOMICS
Economics has been broadly divided into two parts i.e. Micro Economics and
Macro Economics.

1.2.1 MICRO ECONOMICS
 It is the study of the behavior of different individuals and organisations within an
economic system.
 It examines how the individual units (consumers or firms) make decisions as to
how to efficiently allocate their scarce resources.
 In this the focus is on a small number of or group of units rather than all the
units combined and therefore it does not explain what is happening in the wider
economic environment.
 Concepts studied in Micro Economics :
 Product Pricing
 Consumer Behaviour
 Factor Pricing
 The Economic Conditions of a section of people
 Behaviour of firms
 Location of Industry.