Goorming Education Business Economics PDF

SCOPE OF BUSINESS ECONOMICS NATURE& INTRODUCTION (5) UNIT 1: BUSINESS or buying and selling...

SCOPE OF BUSINESS ECONOMICS NATURE& INTRODUCTION (5) UNIT 1: BUSINESS or buying and selling where a person is engaged in manufacturing The business is an occupation of goods and services for earning money. ECONOMICS º INTRODUCTION household. 'Economics' owes its origin to the Greek word Oik-onomia' which means The termn into Ádam Smith in his book named "An Inquiry The Economics was first defined on paper by Nations" or "Wealth of Nations" published in the year the Nature and Causes of the Wealth of 1776. MEANING scarce resources are allocated to Economics is the study of processes by which the relatively satisty the competing unlimited wants of human beings in the society. grown tremendously due to On one hand productive capacity of modern economics has availability of advance technology, skilled labour force, better educational services, best training methods, discovery of new sources of raw materials. Also, the above meaning of economics is narrow as it does not highlight that the economics deals with day-to-day events like inflation, deflation etc. TWOFUNDAMENTAL FACTS OF ECONOMICS, (a) Unlimited want (b) Scarce resources x BUSINESS ECONOMICs MEANING Business economics is basically the combination of business and economics. It involves the use of economiftheories laws models by the business managersto take the optimal decisions for the business enterprise. It is also known as'appliedbrmanagerial economics, Joel Dean defined Business Economics in terms of economic analysis in the business policies. Business economics is essential component of applied formulation of includes application of selected quantitative techniques like linear economics as it analysis, capital budgeting and break-even analysis etc. programming, regression PARTS OF ECONOMICS Two major partsof economics (subject matter): Micro Economics: It is the study of the economy. behaviour of the individual economic units of the Subject matter of microeconomics: Product the economic conditions of a section of people, pricing, Consumer behaviour, Factor pricing, Macro Economics: It is the study of overall behaviour of firms and location of industry. aggregate economics. economicphenomena as a whole, it is also called Subject matter of macroeconomics: level, Balance of trade and National Income and National Output, the Balance Employment and Rate of Economic Growth. of Payments, External value of currency,General price the level of > NATURE OF BUSINESS ECONOMICS (a) Business economics is a (b) Based on science (systematic body of knowledge and relationship); microeconomics elements of macro analysis (study of (heart of business cause & effect (anplication buciness): of theoretical l~owledge (e) Use of theory of externalenvironment): economics); Incorporates of economics to (d) Business (c) solve the practicaleconomics is ofan art (0 markets and private (to frame the problems the Interdisciplinary in nature (knowledge enterprises like business policies): Statistics and Mathematics); (g) of various subjects are used Pragmatic (practical) in Operations research,  TWOLINES 0F Positive (cause ECONOMIC and effect THEORY Normative (involves valuerelasatwhat ionship without should be value as what ought to be judgement). SCOPEOF BUSINESS ECONOMICS , Microeconomics applied to judgement). MacroeConomics applied to operational or internal issues. OPERATIONAL ISSUES AND environmental or external issues. OPERATIONAL EXTERNAL ISSUES ISSUES: Issues in control of the Theories of mi c roeconomi forecasting production cs applied to solve theBusiness Management. and cost analysis, operational issues: Demand analysis and policies, resource allocation, and uncertainty analysis inventoryt etc. profit analysis, theory management, market structure and pricing of capital and investment EXXTERNAL ISSUES: decisions, risks Issues outside the control of the Erternal factors have significant husiness: The type of an influence upon theBusiness Management. economic system, stage of thefunctioning and national income, employment, prices, business saving and investment, cycle, performance the general of the trends in ike fiscal policy, government's economic policies industrial policy, social and political UNIT 2: BASIC environment etc. PROBLEMS OF AN ECONOMY & ROLE OF PRICE MECHANISM CENTRAL PROBLEMS OF THE ECONOMY (PROBLEMS COMMON TO EVERY What to produce (consumer or capital goods)? ECONOMY) " How to produce (labour or capital intensive. For whom to produce technique)? What (distribution of income of goods and services)? provisions are to be made for economic growth (what amount of national be invested)? income should THREE BROAD CLASSIFICATIONS OF ECONOMIES Capitalist (resources owned and controlled by private individuals for profit) Socialist (resources owned and controlled by the government for socialwelfare) " Mixed (involvement of both socialist and capitalist). < CAPITALIST ECONOMY º MEANING: Acapitalist economy is also known as a "free-market economy' or "Laissez faire economy". r CHARACTERISTICS OF THE CAPITALIST ECONOMY Consumer of enterprise: (b) Profit motive: (c)preferences (a) Right to private property: Freedom the consumers' tastes and SOvereignty (the output is produced according to (d) High competition; (e) Absence of consumption): Consumers enjoy wider choice for government interference: (f) Freedom of economic choice. price mechanism. Central problems are solved ina capitalist economy using SOLUTION: MERITSOF THECAPITALIST ECONOMY standard production is minimized: (d) Higherenterprise efficiency; (c) Cost of (2) Automated; (b) Greater framework (preserves fundamental rights): () Encourage Democratic Or living; (e) and risk-taking. DEMERITS OF CAPITALISM welfare; (c) Exploitationof labour: (d) Ignore human monopolies; (B) unrest and class conflict: (b) production; () Formation of (aJ Social (e) Unplanned MIsallocation of resources;consumption Conspicuous and unethical 359  SOCIALIST ECONOMY "Centrally-planned or Socialist economyis also known as a"Command Economy" > MEANING: A Economy'" > CHARACTERISTICS OF THESOCIALIST EC NOMY Relatively equal income Absence of consumer choice; (c) (a) Collective ownership; (b) of the market; (e) Absence of competition; () Economic distribution; (d) Minimum role planning by Central planning authority MERITS OF SOCIALISM balanced economic development; (c) Unemployment (a) Equitable distribution; (b) Rapid andProtected is minimized: (d) Avoidsclass war; (e) from exploitation; (e) Security of citizens is maintained through provision of social security. º DEMERITS OF SOCIALISM (a) Predominance of bureaucracy; (b) Always take basic rights; (c) No proper basis for cost calculation; (d) No freedom of choice; (e) Personal efficiency and productivity hindered; (e) Not at all practicable. MIXED ECONOMY MEANING Mixed economic system depends on both markets and governments for allocation of resources. º FEATURES OF MIXED ECONOMY (a) Co-existence of public and private sectors (b) Encourages enterprise and risetaking (c) Suffers from substantial uncertainties (d) Price mechanism THREE SECTORS OF INDUSTRIES Private sector (owned and controlled by individuals and groups) Publicsector (owned and controlled by the state) Combined (both Government and private enterprise) MERITS OF MIXED ECONOMY (a) Economic freedom; (b) Existence of private better resource allocation; (d)Consumer's property; (c) Efficient decision making and sovereignty; (e) Freedom of choice; (e) Encourages enterpriseand risk-taking;(f) Appropriate incentives for innovation and technological progress. DEMERITS MIXED ECONOMY OF Sometimes excessive government controls hinders the Difficult to maintain a balance between public growth of the private sector. and private sector. Disproportionate growth of private sector. Points to Remember: 1. Economics isa 2. science of wealth-Adam Smith. Business economics is related to both more related to microeconomics microeconomics. Microeconomics and macroeconomics. is the heart However, it is of business economics.