B.Com Sem-I ( Principles of Micro Economics)

SUBJECT:- ECO

Q.1 NATURE OF BUSINESS ECONOMICS

The economic world is extremely complex as there is a lot of interdependence among the decisions and activities of economic entities. Economic theories are hypothetical and simplistic in character as they are based on economic models built on simplifying assumptions. Therefore, usually, there is a gap between the propositions of economic theory and happenings in the real economic world in which the managers make decisions. Business Economics enables application of economic logic and analytical tools to bridge the gap between theory and practice.

The following points will describe the nature of Business Economics:

Business Economics is a Science:

Science is a systematized body of knowledge which establishes cause and effect relationships. Business Economics integrates the tools of decision sciences such as Mathematics,  Statistics and Econometrics with Economic Theory to arrive at appropriate strategies for achieving the  goals of the business enterprises. It follows scienti­c methods and empirically tests the validity of the  results.

    
    Based on Micro Economics:

Business Economics is based largely on Micro-Economics. A business manager

is usually concerned about achievement of the predetermined objectives of his organisation so as to  ensure the long-term survival and pro­table functioning of the organization. Since Business Economics  is concerned more with the decision making problems of individual establishments, it relies heavily on  the techniques of Microeconomics.

Incorporates elements of Macro Analysis:

A business unit does not operate in a vacuum. It is aected by

the external environment of the economy in which it operates such as, the general price level, income  and employment levels in the economy and government policies with respect to taxation, interest rates, exchange rates, industries, prices, distribution, wages and regulation of monopolies. All these  are components of Macroeconomics. A business manager must be acquainted with these and other macroeconomic variables, present as well as future, which may inuence his business environment.Business Economics is an art as it involves practical application of rules and principles for the attainment  of set objectives.

Use of Theory of Markets and Private Enterprises:

Business Economics largely uses the theory of markets  and private enterprise. It uses the theory of the ­rm and resource allocation in the backdrop of a private  enterprise economy.

Pragmatic in Approach:

Micro-Economics is abstract and purely theoretical and analyses economic  phenomena under unrealistic assumptions. In contrast, Business Economics is pragmatic in its approach  as it tackles practical problems which face in the real world.

Interdisciplinary in nature:

Business Economics is interdisciplinary in nature as it incorporates tools  from other disciplines such as Mathematics, Operations Research, Management Theory, Accounting,  marketing, Finance, Statistics and Econometrics.

Normative in Nature:

Economic theory has developed along two lines – positive and normative. A  positive or pure science analyses cause and ect relationship between variables in an objective and scienti­c manner, but it does not involve any value judgement. In other words, it is descriptive in nature in the sense that it describes the economic behaviour of individuals or society without prescriptions about the desirability  or otherwise of such behaviour. As against this, a normative science involves value judgement.  It is prescriptive in nature and suggests ‘what should be’ a particular course of action under given  circumstances. Welfare considerations are embedded in normative science. 

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