An Overview of Business Economics:
Business Economics, also known as Managerial Economics, is the strategic application of economic theory and its methodology to the field of business. Business involves the basic characteristics of decision making. Decision making is a process in which a particular course of action is given prominence out of selection done amongst two or three actions. The question of choice arises because the basic resources such as land, labor, capital etc. to be put into use are limited and are used effectively only if they are used alternately. This in turn, in the decision-making function is becoming one of the most essential steps taken in the path of maximizing profit.
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Certain aspects of the business need special attention from the chief executive. He is called upon to make the choice of choosing a single option among the many that are available. It helps too much extent in the interest of the business so that it can reach a perfect and prime decision which promotes the required goal of the business firm. Formulation of the business problem and thereby finding its prime solution requires that the business firm comprises of a rational methodology in addition to the availability of appropriate tools.
Nature Of Business Economics:
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The traditional economic theory has developed in two different words: normative and positive. Normative action primarily focuses on statements that are prescriptive and helps in establishing rules that are aimed towards achieving certain specified goals of the business. The positive, on the other hand, focuses on the description which aims at how the economic system functions without focusing much on how they should operate.
In business economics, the main emphasis is given to normative theory. Business economics thrives to establish certain rules which aid business firms in achieving their goals. A proper understanding of the environment or the market as we call it is necessary if the firms think of establishing a valid decision rule. This requires a thorough study of positive theory. Thus, it is seen that Business Economics plays a great role in combining the essential features of normative and positive economic theory.
Scopes Of Business Economics:
Demand Analysis & Forecasting – Demand analysis and forecasting provides the essential foundation for business planning and occupies a strategic place in Business Economics. Demand forecasting can serve as a guide to management for properly maintaining and thereby strengthening the position of the market and in turn enlarging profits. Demand analysis helps in identifying the various factors involved in influencing the product demand and therefore, providing guidelines for manipulating the demand. The main topics are as follows: Demand Forecasting, Demand Distinctions, and Demand Determinant.
Cost & Production Analysis –
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A study of economic costs, in combination with the valuable data drawn from the firm’s accounts, can extract significant cost estimates which in turn can prove to be very useful for certain management decisions.
Pricing Decisions, Policies & Practice –
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Pricing is an important aspect of Business Economics. The most important points for Pricing include Price Determination in Various Market Forms, Pricing Method, Differential Pricing, Product-line Pricing and Differential Pricing.
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Certain business firms are made with the sole goal of earning good profits in the long run. The important aspects dealt under this scope include: Nature and Measurement of Profit, Profit Policies and Technique of Profit, Planning like Break-Even Analysis.
Capital Management –
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This is probably the most complex of all. The biggest difficulty that Business Economists have to face is with managing Capital Investments. The reason being, a huge amount of capital is involved and the problems related to them are complex most of the time. The aspects dealt with in this scope are Cost of Capital, Rate of Return and Selection of Projects.
Economic Current Events:
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An Economic current event is an event of much importance that is occurring in the world around us in the field of economics, and the implications of these current events can be considered their effects. These implications are often economic in nature implying that current events have a certain economic effect on the world around us.