Meaning, scope and definition of business economics

Meaning, scope and definition of business economics

1. BUSINESS ECONOMICS
107
UNIT- 1
Faculty Name: Dr. Shuchi Singhal
Designation: Associate Professor
School/Dept: Management
Email address of Faculty Member: [email protected]

2. Programme Outcomes
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PO1: Apply knowledge of various functional areas of business
PO2: Develop communication and professional presentation skills
PO3: Demonstrate critical thinking and Analytical skills for business
decision making
PO4: Illustrate leadership abilities to make effective and productive
teams
PO5: Explore the implications and understanding of the process of
starting a new venture
PO6: Imbibe responsible citizenship towards a sustainable society
and ecological environment
PO7: Appreciate inclusivity towards diverse cultures and imbibe
universal values
PO8: Foster Creative thinking to find innovative solutions for
various business situations

3. Course Objective and Course Outcomes
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CO1:Understand the fundamental concepts of Business
Economics.
CO2:Analyze the relationship between consumer behaviour
and demand.
CO3:Explore the theory of production through the use of
ISO-QUANTS.
CO4:Understand the concept and relevance of short-term
and long-term cost.
CO5:Examine pricing decisions under various market
conditions.
CO6:Analyse economic challenges posed to businesses

4. Syllabus

5. Unit 1- Introduction to Business Economics and
Fundamental Concepts
1.1 Nature, Scope, Definitions of Business Economics- Part 1
1.2 Nature, Scope, Definitions of Business Economics-Part 2
1.3 Difference Between Business Economics and Economics
1.4 Contribution and Application of Business Economics to Economics
1.5 Micro vs. Macro Economics
1.6 Opportunity Costs
1.7 Time Value of Money
1.8 Marginalism
1.9 Incrementalism
1.10 Market Forces and Equilibrium
1.11 Risk, Return and Profits
1.12 Introduction to Behavioural Economics: Nudge Theory

6. 1.1 Part 1
•Introduction to UNIT
1
•Syllabus
•Meaning of
Economics
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7. 1.1 Nature, Scope, Definitions of
Business Economics
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8. Suggested Readings
1. Author: Christopher R. Thomas & S. Charles Maurice
Title of the Book: Managerial Economics-Foundations of
Business Analysis and Strategy
Chapter’s Name: Managers, Profits and Markets
2. Author: Paul A. Samuelson and William D Nordhaus
Title of the Book: Economics
Chapter’s Name: The Central Concepts of Economics
https://arts-sciences.buffalo.edu/economics/about/what-is-economics.html
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9. 1.1 Nature, Scope, Definitions of Business
Economics
1.1.1 Meaning of Economics:
•In 19th century, Economics was known as ‘Political Economy.’ In the late
19th century, the term "economics" gradually began to replace the term
"political economy“
•The book named ‘An Inquiry into the Nature and Causes of the Wealth of
Nations’ (1776) usually abbreviated as ‘The Wealth of Nations’, by Adam
Smith is considered as the first modern work of Economics.
•Before we start with the meaning of Business Economics, it is important for
us to understand what Economics is about. For this, consider the following
situation:
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10. It is your birthday and your mother gives you Rs.1000 as birthday gift. You are free
to spend the money as you like.
What will you do? You have many options before you, such as:

•What do you notice? You have many options before you.
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11. •Now, you find yourself in a dilemma as to which of the above options to
choose. You will have to go for one option or a combination of one or more
options.
•What do you do? You evaluate the various alternatives and choose the one
that gives you the greatest satisfaction.
•Similar dilemma is faced by every individual, every society and every
country in this world.
•Life is like that. Since we cannot have everything we want with the
resources we have, we are forever forced to make choices.
•Therefore, we choose to satisfy only some of our wants leaving many other
wants unsatisfied.
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12. •These two fundamental facts that:
(i)‘Human beings have unlimited wants’; and
(ii) ‘The means to satisfy these unlimited wants are relatively scarce’ form
the subject matter of Economics.
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13. •Let us now examine what Economics studies about.
•The word economy comes from the Greek word oikonomos, which means “one
who manages a household.”
•At first, this origin might seem peculiar. But in fact, households and economies
have much in common.
•A household faces many decisions. It must decide which household members do
which tasks and what each member receives in return: Who cooks dinner? Who
does the laundry? Who gets the extra dessert at dinner? Who gets to drive the
car? In short, a household must allocate its scarce resources (time, dessert, car
mileage) among its various members, taking into account each member’s
abilities, efforts, and desires.
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14. •Like a household, a society faces many decisions. It must find some way to
decide what jobs will be done and who will do them. It needs some people to
grow food, other people to make clothing, and still others to design computer
software. Once society has allocated people (as well as land, buildings, and
machines) to various jobs, it must also allocate the goods and services they
produce.
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15. 15

16. Conclusion
•Economics is the study of how society manages its scarce
resources.
•The word economy comes from the Greek word oikonomos,
which means “one who manages a household”.
•Economics is the study of how we work together to
transform the scarce resources into goods and services to
satisfy the most pressing of our infinite wants and how we
distribute these goods and services among ourselves.
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17. 1.1 Part 2
•How People Make
Decisions
•Meaning of
Business Economics
•Definitions of
Business Economics
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18. 1.1 Nature, Scope, Definitions of
Business Economics
18

19. Suggested Readings
1. Author: Christopher R. Thomas & S. Charles Maurice
Title of the Book: Managerial Economics-Foundations of
Business Analysis and Strategy
Chapter’s Name: Managers, Profits and Markets
2. Author: Paul A. Samuelson and William D Nordhaus
Title of the Book: Economics
Chapter’s Name: The Central Concepts of Economics
https://studentzone-ngasce.nmims.edu/content/Business%20Economics/
Business_Economics_Book_trOWJ916T5.pdf
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20. How People Make Decisions
•There is no mystery to what an economy is.
•Whether we are talking about the economy of India, the United States, or the
whole world, an economy is just a group of people dealing with one another as
they go about their lives.
• Because the behavior of an economy reflects the behavior of the individuals who
make up the economy, we begin our study of economics with four principles
about individual decision making.
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21. Quick Quiz Describe an important trade-off you recently faced.
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22. 1.1.2 Meaning of Business Economics:
•Having understood the meaning of Economics, let us now understand what
Business Economics is. For this, consider the following situation :
Short Case
Mr. G. Ramamurthy, the CEO of Worldwide Food Limited, on completion of
his presentation turned to his Board of Directors and raised the question
“Well ladies and gentlemen, what do you say? Shall we go into soft drink
business?”
“Give us some time, Sir” remarked Swaminathan. “You are asking us to
approve a major decision which will have long term impact on the direction of
the company”.
“I understand your concern for the company but now the time has come for
us to expand our business. Soft drinks market is growing fast and it is closely
related to our core business: food” answered Ramamurthy.
“But competition from White Soft Drinks Ltd. and Black Nectar Ltd. is tough.
They are already into this business for years” remarked another board
member.
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23. •“That is right. But we must not forget that the statistics show that there
is still room for growth in this market. And also, food business is near
maturity.” Replied Ramamurthy
•“Don’t forget that even Swati Foods tried entering the soft drink market
and failed miserably”, remarked Ashok Agrawal, another board member.
“Moreover, the projections you are showing are based on last ten years’
data. What is the guarantee that the trend will continue? He questioned.
“Also, we should not forget that Indians have become health conscious
and who knows tomorrow what will people prefer?” he continued.
•“Well friends, all your concerns are logical, and believe me; I have given
much thought to these ‘ifs’ and ‘buts’. My people have spent many days
analyzing all available data to arrive at a judgement. Our analysis
indicates a strong possibility of earning above-average return on
investment in this market, a return that will be more than what we are
earning in food industry. We are already working on the details of
production, cost, pricing, distribution, financing etc. I fear, if we wait for
long, we will be missing an opportunity that may not come again for long.
Let’s go ahead and make the most of it” remarked Ramamurthy.
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24. •What do you notice in the hypothetical example given above?
• The management of the company is faced with the problem of decision
making.
• As we are aware, the survival and success of any business depends on
sound decisions.
•The management of a business unit generally needs to make strategic,
tactical and operational decisions.
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25. •A few examples of issues requiring decision making in the context of
businesses are illustrated below:
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26. •Decision making on the above as well as similar issues is not simple and
straightforward as the economic environment in which the firm functions is
highly complex and dynamic.
• The problem gets aggravated because, most of the time, decisions are to be
taken under conditions of imperfect knowledge and uncertainty.
•Decision making, therefore, requires that the management be equipped with
proper methodology and appropriate analytical tools and techniques.
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27. •Business Economics meets these needs of the management by providing a
large corpus of theory and techniques.
•Briefly put, Business Economics integrates economic theory with
business practice.
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28. 1.1.3 Definitions of Business Economics:
•The application of economic theories, logic and tools of analysis to the
assessment and prediction of market condition is of great help in business
decision making.
•Consequently, economic theories and analytical tools that are widely used
in business decision-making have crystallized as a separate and specialized
branch of study, called ‘Business Economics’. It is also called ‘Managerial
Economics’.
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29. •Business economics is essentially that part of economics which is applied to
business problems to find appropriate solution through decision making.
“Business economics is concerned with the application of economic
principles and methodologies to the decision making process within the
firm or organization.” ---------- Douglas
“Business economics refers to the application of economic theory and the
tools of analysis of decision science to examine how an organization can
achieve its aim or objective most effectively.” -------- Salvatore
“Business economics applies the principles and methods of economics to
analyze problems faced by management of a business or other types of
organizations and to help find solutions that advance the best interest of
such organizations.” ------ Davis and Chang
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30. Conclusion
• There are four principles about individual decision making.
•Business economics is concerned with the application of
economic principles and methodologies to the decision making
process within the firm or organization.
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31. 1.1 Part 3
•Nature of Business
Economics
•Scope of Business
Economics
31

32. 1.1 Nature, Scope, Definitions of
Business Economics
32

33. Suggested Readings
1. Author: Christopher R. Thomas & S. Charles Maurice
Title of the Book: Managerial Economics-Foundations of
Business Analysis and Strategy
Chapter’s Name: Managers, Profits and Markets
2. Author: Paul A. Samuelson and William D Nordhaus
Title of the Book: Economics
Chapter’s Name: The Central Concepts of Economics
https://theinvestorsbook.com/managerial-economics.html
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34. 1.1.4 Nature of Business Economics:
The following points will describe the nature of Business Economics:
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35. 1.1.5 Scope of Business Economics:
•Economics has two major branches:
(i) Microeconomics, and
(ii) Macroeconomics.
Both micro and macro economics are applied to business analysis
and decision-making.
•In general, however, the scope of business economics consists of
all those microeconomic concepts, theories and tools of analysis
which can be applied to analyse the demand prospects,
production and cost conditions and pricing options with the
objective of finding solutions to practical business problems.
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36. The scope of Business Economics in various areas of operations as
described below:
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37. Conclusion
•Business economics is concerned with the application of
economic principles and methodologies to the decision making
process within the firm or organization.
•Business economics is an art as well as a science.
•The scope of Business Economics is in various areas of
operations.
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