NATURE AND SCOPE OF BUSINESS ECONOMICS

Ø  NATURE AND SCOPE OF BUSINESS ECONOMICS 1
BUSINESS ECONOMICS

Ø  SHASHI AGGARWAL ECONOMICS AND LAW CLASSES

• MEANING OF BUSINESS ECONOMICS
• BUSINESS ECONOMICS IS ALSO CALLED MANAGERIAL ECONOMICS IS THE APPLICATION OF ECONOMIC THEORY AND METHODOLOGY TO BUSINESS. DECISION MAKING MEANS THE PROCESS OF SELECTING ONE OUT OF ALTERNATIVE  AS THE RESOURCES ARE LIMITED
• A SCIENTIFIC FORMULATION OF THE BUSINESS PROBLEM AND FINDING ITS OPTIMAL SOLUTIONS REQUIRE THAT THE BUSINESS FIRM IS EQUIPPED WITH A RATIONAL METHODOLOGY AND APPROPRIATE TOOLS.
• REFERS TO THE INTEGRATION OF ECONOMIC THEORY WITH BUSINESS PRACTICES. THAT BRANCH OF ECONOMICS WHICH SERVE AS LINK BETWEEN ABSTRACT THEORY AND MANAGERIAL PRACTICES.
•  ECONOMICS AS A SCIENCE IS CONCERNED WITH THE PROBLEM OF ALLOCATING RESOURCES AMONG COMPETING ENDS. ECONOMICS PROVIDE THE TOOLS AND CONCEPTS WHICH EXPLAIN THE BEHAVIOR PATTERN OF ECONMIC VARIABLES SUCH AS DEMAND,SUPPLY,PRICE AND COMPETITION.
•  MEANING OF MANAGERIAL: THE TERM MGMT REFERS TO THE FUNCTIONS OF PLANNING. MAIN FUNCTION OF MGMT ARE DECISION MAKING AND FORWARD PLANNING
• MANAGERIAL ECONOMICS IS THE APPLICATION OF ECONOMIC THEORY AND QUANTITATIVE METHODS TO MANAGERIAL MGMT DECISION MAKING

• BUSINESS ECONOMICS IS THAT PART OF ECONOMIC THEORY WHICH DEALS WITH THE APPLICATION OF ECONOMIC TOOLS AND CONCEPTS TO THE SOLUTION OF BUSINESS PROBLEMS OR THE PROBLEMS OF RESOURCE ALLOCATION AMONG THE COMPETING ENDS.
• EDWIN MANSFIELD,” MANAGERIAL ECONOMICS IS CONCERNED WITH THE WAYS IN WHICH MANAGER SHOULD MAKE DECISIONS IN ORDER TO MAXIMIZE THE EFFECTIVENESS OR PERFORMANCE OF THE ORGANISATIONS THEY MANAGE.
• JOEL DEAN,” THE PURPOSE OF MANAGERIAL ECONOMICS IS TO SHOW HOW ECONOMIC ANALYSIS CAN BE USED IN FORMULATING MANAGERIAL POLICIES
• 
  (EXAMPLE
• Q_X=f(P_x,Y,P_C,P_S)
• P_x,Y,P_C,P_S      BY ESTIMATING THE VALUE AND USING REGRESSION ANALYSIS WE WILL KNOW WHAT IS THE IMPACT OF CHANGE WILL BE ON THE OUTPUT. 

• BUSINESSECONOMICS

1. CONCERNED WITH DECISION MAKING OF ECONOMIC NATURE
2. GOAL ORIENTED AND PERSPECTIVE
3. PRAGMATIC:CONCERNED WITH APPLICATION
4. BOTH CONCEPTUAL AND METRICAL

• FUNDAMENTAL NATURE OF BUSINESS ECONOMICS

1. ECONOMIC THEORY

• MACRO ECONOMICS : DEALS WITH AGGREGATE ECONOMIC CONCEPTS RELATING TO THE ENTIRE ECONOMY. PROVIDE THE FRAMEWORK IN WHICH THE FIRM OPERATES.

a)       FREE ENTERPRISE ECONOMY

b)      A RAPID TECHNOLOGICAL AND ECONOMIC CHANGES

c)       CYCLICAL FLUCTUATIONS

d)      MONETARY AND FISCAL POLICY

• MICRO ECONOMICS:-

a)       DEALS WITH THE PROBLEMS OF INDIVIDUAL,FIRMS

b)      HELPS IN STUDYING WHAT IS GOING ON WITH IN THE FIRM

c)       HOW BEST TO USE THE LIMITED RESOURCES

2. POSITIVE VS NORMATIVE APPROACH

1. POSITIVE APPROACH:-WHAT IS,WAS WILL BE
2. NORMATIVE APPROACH WHAT OUGHT TO BE

3. INTEGRATION OF ECONOMIC THEORY AND BUSINESS PRACTICE
4. UNDERSTAND THE ACTUAL BEHAVIOR OF THE BUSINESS
5. ESTIMATE AND PREDICT THE ECONOMIC QUANTITIES AND RELATIONSHIP
6. DECISION MAKING AND FORWARD PLANNING
7. SIGNIFICANCE OF THE ENVIRONMENT

Ø  FEATURES OF MANAGERIAL ECONOMICS

1. MANAGERIAL ECONOMICS IS MICRO ECONOMICS IN CHARACTER
2. HELP OF MACRO ECONOMICS
3. PRAGMATIC
4. NORMATIVE
5. CONCEPTUAL AND METRICAL
6. THEORY OF FIRM
7. WISE CHOICES
8. MULTIDISCIPLINARY

• SCOPE OF BUSINESS ECONOMICS
•  SCOPE IS VERY WIDE AS IT INVOLVES APPLICATION OF ECONOMIC CONCEPTS TO PROBLEMS WE FACE IN REALITY IN BUSINESS.

1.  DEALS WITH FOUR PROBLEMS IN BOTH DECISION MAKING AND FORWARD PLANNING:
2. RESOURCE ALLOCATION FOR OPTIMAL RESULTS
3. INVENTORY QUEUING PROBLEM
4. PRICING PROBLEMS
5. INVESTMENT PROBLEMS

1. THEORY OF DEMAND ANALYSIS AND FORECASTING
   
   
   

a)       DEMAND DETERMINANTS

b)      DEMAND FORECASTING

c)       DEMAND THEORY EXPLAINS THE CONSUMER BEHAVIOR

d)      HOW DO THE CONSUMER DECIDE TO BUY OR NOT

e)       QUANTITY

f)        BEHAVIOR OF CONSUMER WHEN THERE IS CHANGE IN THE PRICE,TASTES ETC

g)      DEMAND FORECASTING IS ESSENTIAL FOR MANAGERIAL PLANNING

2. THEORY OF PRODUCTIONS AND PRODUCTION DECISIONS
   
   

a)       ALSO KNOWN AS THEORY OF FIRMS

b)      RELATIONSHIP BETWEEN INPUTS AND OUTPUTS

c)       RETURNS TO FACTOR IN SHORT PERIOD

d)      OPTIMUM SIZE OF THE PLANT,SIZE OF THE TOTAL OUTPUT AMOUNT OF CAPITAL AND LABOUR

3. ANALYSIS OF MARKET STRUCTURE AND PRICING THEORY

a)       PRICES ARE DETERMINED UNDER DIFFERENT MARKET CONDITIONS

b)      ROLE OF ADVERTISING

c)       HELPFUL IN DETERMINING THE PRICE POLICY OF THE FIRM AND PRICE THEORY AND PRODUCTION THEORY OPTIMUM SIZE OF THE FIRM

4. COST ANALYSIS

a)       DETERMINATION OF COST,METHODS OF ESTIMATING THE COST

b)      COST VOLUME PROFIT ANALYSIS

c)       COVERS COST CONCEPTS,CLASSIFICATION,COST OUTPUT RELATIONSHIPS,ECONOMIES AND DIS ECONOMIES

5. PROFIT ANALYSIS AND PROFIT MGMT

a)       CONDITIONS OF UNCERTAINTY

b)      DEMAND FOR THE PRODUCT AND INPUT PRICES ETC

c)        GUIDES THE MEASUREMENT AND MGMT OF PROFITS AND MAKING ALLOWANCES FOR THE RISK AND CALCULATING RETURN ON CAPITAL EMPLOYED

6. THEORY OF CAPITAL AND INVESTMENT DECISIONS

a)       CAPITAL IS THE FOUNDATION OF THE BUSINESS

b)      CHOICE OF INVESTMENT PROJECTS

c)       ASSESSING THE EFFICIENCY OF CAPITAL

d)      ALLOCATION OF CAPITAL

e)       CAPITAL BUDGETING ETC

7. INVENTORY MGMT

a)       MGMT OF INVENTORY

b)      OPTIMUM INVESTMENT IN INVENTORY

8. BUSINESS CYCLES