The Nature and Scope of Business Economics

What Business Economics is about?

• It is concerned with the application of economic theory and
methods of the analysis of decision making problems faced by
business firms.
• Decision about price and output of the product in order to
maximize profits is made.
• Careful Analysis of the demand for a product and costs of its
production is done.

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Definition of business economics
 Definition of Business Economics
• It can be described as the use of theories and techniques of
modern economics for decision making problems of business
firms.

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Role of Business Economics in Business Decision Making

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 Types of business decisions
• Price and Output Decision
• Demand Decisions
• Choice of technique of production
• Advertising Decision
• Long run production decisions
• Investment Decisions

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Managerial Decision Making Process

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Subject Matter of Economics

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 Subject Matter of Micro Economics
• Micro Economics is the study of individual economic units of an
economy like a household, firm or an industry.
• The four basic economic questions namely,
(1) What goods shall be produced and in what quantities
(2) How the goods shall be produced
(3) How the goods shall be distributed
(4) Whether the production of goods and their distribution for
consumption is efficient fall within the domain of micro-economics.

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 Importance and Uses of Microeconomics
• To understand the operation of individual economic units of an
economy
• To provide tools for economic policies
• Efficient Utilization of resources
• Price determination
• Useful in managerial decision making
• Basis of prediction of demand for growth of the business firm.

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 Macro Economics
Macro Economics is the study of the economy as a whole. Macro
Economics examines the determination of the level,
fluctuations(cycles) and trends(growth) in the overall economic
activity i.e., level of national income, output and employment)
It is the study of aggregates.
It determines economics growth and inflation.

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 Social Responsibility
• Social responsibility is an ethical framework which suggests
that an entity, be it an organization or individual, has an
obligation to act for the benefit of society at large.

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 Social Costs of Business
• Exploitation of consumers by monopolies
• Emergence of Oligopolistic Firms leads to higher market price
and restriction of output.
• Child Labour employed by private enterprises.
• Environmental Pollution

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Difference between Micro and Macro Economics

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