LESSON – I
INTRODUCTION – MEANING AND OBJECTIVES OF
BUSINESS ECONOMICS
OBJECTIVES
After going through this chapter, you should be able to
- Understand the meaning, nature and scope of Business Economics
- Know the objectives and importance of Business Economics
- Understand the role and responsibilities of a Business Economist
STRUCTURE
1.1 MEANING OF BUSINESS ECONOMICS
1.2 Characteristics of Business Economics
1.3 Nature and Scope of Business Economics
1.4 Objectives of Business Economics
1.5 IMPORTANCE OF BUSINESS
1.5.1 Theoretical Significance
1.5.2 Practical Significance
1.6 Role and Responsibilities of a Business Economist
UNIT QUESTIONS
1.1 MEANING OF BUSINESS ECONOMICS
Business Economics is the latest terminology used in business organization. It denotes the application of economic theories to the business conditions and decision making in business. It involves a coordination process linking business methods with the formation of future plans and making decisions in business. To say in brief Business Economics is an applied science in the sphere of business organization.
MC IVAIR AND MERIAM
“Business Economics consists of the use of economic modes of thought to analyse business problems”.
SPENCER AND SIEGELMAN
“Business Economics is the integration of economic theory with business
practice for the purpose of facilitating decision making and forward planning by management”.
Joel Dean
Business Economics is the use of economic analysis in formulating policies.
1.2 Characteristics of Business Economics
1. Micro Economic Nature: Business Economics is micro economic in its nature because it deals with matters of a particular business firm only.
2. Use of Economic Theories: Business Economics uses all economic theories relating to the profits, distribution of income etc.
3. Realistic One: Business Economics is a realistic science. It studies all matters concerning business organisation by considering the real conditions existing in the business field.
4. Normative Science: Business Economics is a normative science. It studies the matters concerning the aims and objectives of a business firm. It determines the methods to be adopted for achieving such objectives. It also makes enquiry into the good and bad in decision making. Hence it is a normative science.
5. Macro-Economic Uses: Even though Business Economics has the nature of Micro-Economics, it also uses Macro-Economic approaches frequently. Certain matters in Macro-Economics like Business Cycles, National Income, Public Finance, Foreign trade etc. are essential for Business Economics. So, Business Economics uses the macro-economic phenomenon for taking business decisions.
1.3 Nature and Scope of Business Economics
The scope of Business Economics consists of the following:
1. Demand Forecasting: Demand forecasting is an important topic studied in Business Economics. Every business firm initiates and continues its production process on the basis of the anticipation of more demand for its goods in the future. It makes research and conducts market survey with a view to know the tastes and fashions of the consumers. It pools up the resources and starts production for meeting the future demand. Business Economics analyses the demand behaviour and forecasts the quantity demanded by the consumers.
2. Cost Analysis: Business Economics deals with the analysis of different costs incurred by the business firms. Every firm desires to minimise its costs and increase its output by securing several economies of scale. But it does not know in advance about the exact costs involved in production process. Business Economics deals with the cost estimates and acquaints the entrepreneurs with the cost analysis of their firm.
3. Profit Analysis: Every business firm aims to secure maximum profits. But at the same time it faces uncertainty and risk in getting profits. It has to make innovations in production and marketing of its goods. Business Economics deals with the matters relating to profit analysis like profit techniques, policies and break-even analysis.
4. Capital Management : Capital management is another topic dealt in Business Economics. It denotes planning and control of capital expenditure in business organisation. It studies matters like cost of capital, rate of return, selection of best project etc.
Thus, Business Economics deals with several matters relating to the business management like demand, costs, profits and capital. All these elements are variable. So enterpreneurs face risk, bear uncertainty and innovate for boosting up the demand, sales, production and profits of their goods. Business Economics analyses and applies the economic laws to the business problems faced by the entrepreneurs. It provides remedies for overcoming such problems in business.
1.4 Objectives of Business Economics
Business Economics deals with issues connected with selection of resources available to a firm, method of production and effective management of business firms.
Making decisions is a fundamental process of any organisation, whether big or small. Business organisations have to take decisions to fulfil organisational goals. These goals are, converting inputs into desirable output and to make the organisation viable. Decision-taking in business also helps in reducing risk and uncertainty. The survival of the organisation depends upon good forecasting. It is difficult to predict the future accurately. Yet it is very important. It is necessary to forecast as accurately as possible, the demand conditions, raw-material supplies, technological advances, political changes and the like, in order to be in a position to meet the future with confidence. Business economics aims at solving various risks.
Business Economics aims at helping the organisation in planning process. It is a subject which deals with utilisation of limited resources to achieve the goals. Forecasting, planning and decision making are the important fields of business economics.
Decision-making involves choice. The problem of decision making arises because resources available to a firm are limited and they can be put to alternative uses. Thus decision-making function becomes one of making choices that will provide the most efficient means of attaining a desired goal, say for example, profit maximisation. Once the decision is taken about a particular goal to be achieved, plans regarding production, pricing, capital, raw materials, labour etc are prepared. Forward planning goes hand in hand with decision-making.
1.5 IMPORTANCE OF BUSINESS ECONOMICS
Business Economics is a useful subject. In fact it is the most significant of all social sciences, Its study is highly useful for analysing and understanding the various economic problems. Its study brings utility to all sections of the people. Business Economics became the intellectual religion of the day. Business Economics is described as both light giving and fruit bearing science. It enriches our knowledge (light) and brings results (fruits). The theoretical and practical utility or significance of Business Economics is explained from the following points:
1.5.1 Theoretical Significance
1. Understanding Economic Behaviour
The study of Business Economics helps us to understand the economic behaviour of human beings.
2. Working of the Economic System
Business Economics explains the conditions which influence the progress of the economy. It makes suggestions for overcoming the complicated problems faced by the people and the government in various economic systems. Hence it has great significance for understanding the working of the economic system.
3. Intellectual Value
The study of Business Economics sharpens the intellectual calibres of individuals. It imparts certain qualities like rational behaviour, proper allocation of resources etc.
4. Economic Tools
Mrs. Joan Robinson described Economics as a box of economic tools. It provides a good knowledge regarding the nature, causes and effects of various economic phenomena.
5. Economic Growth
Business Economics suggests various ways and means for maintaining the growth rates in the developed economies. It also analyses the factors obstructing the economic growth of these countries.
6. Economic Development
Developing countries aim at achieving economic development within a short span of time. Business Economics enables us to understand the nature and conditions necessary for the successful organisation of business firm.
7. Performance of the Economy
Business Economics helps us to assess the performance of the economy. We can judge the position, progress and future of an economy through several theories and models of Business Economics.
8. Economic Planning
Economic planning is an important branch of economics. Economics provides a good knowledge and information regarding the techniques of Economic Planning. It sharpens our mental abilities by clearly explaining the types, aims and objective of economic plans.
9. Prediction
Business Economics serves as the best means for predicting the economic events. It helps us to predict the consequence of various economic phenomena.
10. Ethical Value
Business Economics inculcate certain ethical norms like honesty, responsibility and adjustability etc. It upholds the moral and cultural values of individuals. It makes them honest and dignified citizens.
1.5.2 Practical Significance
1. Useful to the Finance Minister
The study of Business Ecànomics is highly useful to the Finance Minister and the personnel working in the finance department. It provides a good knowledge about public revenue, public debt and public expenditure. It helps them in forming a sound financial policy and result oriented budget.
2. Useful to the Minister for Planning
The study of Business Economics is also useful to the Minister for planning and his personnel. It furnishes a good knowledge about the various types of plans, mobilisation, plan implementation, capital output ratio, investment strategy etc.
3. Useful to the Bankers
Business Economics is also useful to the bankers. It enables them to understand the nature, purpose and implications of different economic policies implemented by the business firms.
4. Trade Union Leaders
Knowledge of Business Economics is also significant for the trade union leaders. The study of Business Economics helps the trade union leaders to understand the nature and causes of industrial disputes, wage problem etc.
5. Businessmen
Business Economics is also useful to the businessmen. Businessmen, with the help of Business Economics, can study the fluctuations in business, prices, production and employment. They can adopt a proper strategy for producing goods and services according to the changes in demand.
6. Statesmen
Statesmen will also get benefit by studying Business Economics. It enables them to understand the nature and causes of economic problems. It helps them to solve the economic problems like unemployment, inflation, scarcity of goods etc.
7. International Economic Problems
International Economics is an important branch of Economics. It deals with matters like terms of trade, balance of payments, export and import regulations etc. Its knowledge enables the international agencies to determine the foreign exchange value of various national currencies.
Thus, Business Economics has both theoretical and practical significance. Its study is useful to all sections of the people.
1.6 Role and Responsibilities of a Business Economist
A business economist is an economic adviser to a businessman. He helps the management in using specilized skills and sophisticated techniques which are required to solve difficult problems. An entrepreneur, in the course of his business operations, has to take a number of decisions which are very important for the survival and growth of business, such as:
1. Kind of product to be produced.
2. The quality and quantity in which it has to be produced.
3. The cost of the product and its selling price.
4. Diversification and modernisation of business.
A business economist is expected to be an expert in all those areas which require proper planning. He assumes certain important roles and responsibilities which may briefly be explained as follows:
1. Technological Developments
A business economist must be aware of changing developments in technology. Changed technology may give rise to a new substitute which may affect the business of a firm adversely.
2. Business Forecasting
The fundamental activity of a business economist is forecasting. He should be in a position to forecast future changes, both in the national and international front. Most management decisions necessarily concern the future which is rather uncertain. It is therefore, absolutely essential for a business economist to recognize his responsibility in making successful forecasts. By doing so, he should aim at minimising, if not completely eliminating the risks involved in business.
3. Costs
A business economist should identify ways and means of economizing the use of scarce resources and thereby minimizing the costs of production.
4. Finance
It is the responsibility of a business economist to advise a businessman regarding the availability of alternative sources of finance. He must help the businessman in securing cheap, adequate and timely finance.
5. Government Policies
A business economist should analyse the impact of government policies on a particular firm because we know that every business firm has to work within the framework of general economic factors and government policies have their impact on business conditions.
6. Profits
A business economist should guide a businessman in such a way that he gets a fair return on the capital that he has invested in the business. In this regard a business economist has to advise the businessman in the three different areas viz, capital budgeting, budgeting controls, project planning.
7. Investment
It is the responsibility of the business economist to help the businessman in making the right choice of investment by assessing returns on different forms of investment through the cost-benefit analysis.
8. Location
A business economist must be able to suggest to the businessman the most economically suitable place for locating the firm. He has to take into consideration the availability of raw materials, existence of infra-structural facilities like transport, communication and other relevant factors before suggesting the location for establising the firm.
9. Objectives
All business firms have both short-term and long-term objectives Sometimes the achievement of short-run objectives may come in the way of long-run objectives. The business economist must help the businessman in reconciling the conflicting objectives.
10. Relevant data
A business economist should establish and maintain contacts with persons and sources of data in order to collect relevant information which could be valuable in the field of business. A business economist applies several quantitative and qualitative techniques to the practical problems faced by a firm. In order to do this a business economist undertakes the estimation of demand conditions, elasticity of demand in relation to price and income of the consumer, cost conditions nature and extent of competition and so on.
Thus, a business economist is a friend and an adviser to a businessman. It has now become inevitable to a businessman, to employ the services of a business economist.
UNIT QUESTIONS
1. Explain the characteristics of Business Economics.
2. Examine the nature and scope of Business Economics.
3. Analyse the importance of Business Economics.
4. Describe the role and responsibilities of business economist.
Dinesh Kandagatla
Dinesh
Kandagatla
an email at crmnldan1729@gmail.com
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