What Is Business Economics? Definition, Scope, Importance — Geektonight

Business Economics is playing an important role in our daily economic life and business practices. Organisations face many problems on a day to day basis. For example, organisations are always concerned with producing maximum output in the most economical way.

To solve problems of such nature, managers are required to apply various economic concepts and theories. The application of economic concepts, theories, and tools in business decision making is called business economics or managerial economics.

What is Business Economics?

Business Economics is the integration of economic theory with business practice for the purpose of facilitating decision making and forward planning by management

Business Economics, also referred to as Managerial Economics, generally refers to the integration of economic theory with business practice.

While the theories of Economics provide the tools, which explain various concepts such as demand, supply, costs, price, competition etc., Business Economics applies these tools in the process of business decision making.

Definition of economics by different economists have a different point of view, but the essence is the same. The following are some popular definition of business economics.

From the above-mentioned business economics definitions, it can be concluded that business economics is a link between two disciplines, which are management and economics.

The management discipline focuses on a number of principles that aid the decision-making process of organisations.

On the other hand, economics is related to the optimum allocation of limited resources for attaining the set objectives of organisations.

Characteristics of Business Economics

Characteristics of business economics are:

1. Microeconomics: Business economics is microeconomic in character. This is so because it studies the problems of an individual business unit. It does not study the problems of the entire economy.
2. Uses macroeconomics: Macroeconomics is also useful to business economics. Macro-economics provides an intelligent understanding of the environment in which the business operates.
3. Management oriented: The main aim of managerial economics is to help the management in taking correct decisions and preparing plans and policies for the future.

Scope of Business Economics

The scope of business economics is quite wide. Business economics involves the application of various economic tools, theories, and methodologies for analyzing solving different business problems.

There are two categories of business issues to which economic theories can be directly applied, namely:

1. Microeconomics applied to internal or operational issues
2. Macroeconomics applied to external or environmental issues

Therefore, the scope of Business Economics may be discussed under the above two heads.

Microeconomics applied to internal issues

Operational issues include all those issues that arise within the organisation and fall within the purview and control of the management.

The following Microeconomic theories deal with most of these issues.

Macroeconomics applied to external issues

Environmental factors have signi­cant influence upon the functioning and performance of the business.

The major scope of business macroeconomic factors relate to:

• The type of economic system stage of business cycle is the general trends in national income, employment, prices, saving and investment.
• Government’s economic policies like industrial policy, competition policy, monetary and ­scal policy, price policy, foreign trade policy and globalization policies.
• Working of ­nancial sector and capital market
• Socio-economic organisations like trade unions, producer and consumer unions and cooperatives.
• Social and political environment: Business decisions cannot be taken without considering these present and future environmental factors.
• Business decisions cannot be taken without considering these present and future environmental factors. As the management of the fi­rm has no control over these factors, it should ­ne-tune its policies to minimise their adverse effects

Read: Difference Between Micro and Macro Economics

Importance of Business Economics

Business economics plays an important role in decision making in an organisation. Decision making is a process of selecting the best course of action from the available alternatives.

The following points explain the importance of business economics:

• Business economics covers various important concepts, such as Demand and Supply analysis; Short run cost and Long run costs ; and Law of Diminishing Marginal Utility . These concepts support managers in identifying and analysing problems and finding solutions.
• Business economics helps in establishing relationships between different economic factors, such as income, profits, losses, and market structure. This helps in guiding managers in effective decision making and running the organisation.

Difference Between Economics and Business Economics

Economics is a traditional subject that has prevailed from a long time.

Business economics is a modern concept and is still developing.

Economics mainly covers theoretical aspects.

Business economics covers practical aspects.

In economics, the problems of individuals and societies are studied.

In Business economics, the main area of study is the problems of organisations.

In economics, only economic factors are considered.

In business economic, both economic and no-economic factors are considered.

Both microeconomics and macroeconomics fall under the scope of economics.

Only microeconomics falls under the scope of business economics.

Economics has a wider scope and covers the economic issues of nations.

Business economics is a part of economics and is limited to the economic problems of organisations

Summary of Business Economics

Business Economics comprises of that part of economic knowledge, logic, theories and analytical tools that are used for rational business decision making. In brief, it is Applied Economics that ­fills the gap between economic theory and business practice.

The scope of business economics is quite wide. It covers most of the practical problems a manager or a firm faces.

It can be concluded that Business Economics is a link between two disciplines, which are management and economics.

• The management discipline focuses on a number of principles that aid the decision-making process of organisations.
• On the other hand, economics is related to the optimum allocation of limited resources for attaining the set objectives of organisations.

Therefore, it can be said that business economics is a special discipline of economics that can be applied in business decision making of organisations. Also, the Importance of business Economics plays a crucial role in decision making in an organisation.

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Originally published at https://www.geektonight.com on June 13, 2020.