CA Foundation Chapter 1: Nature and Scope of Business Economics PDF

CA FOUNDATION PDLEARNING CURVE Chapter 1 Nature and Scope of Business Economics 1 Economics originated from Greek work "Oikonomid Oiko-'House' & Nomia, "Management' 2. Till 19" cent...

CA FOUNDATION PDLEARNING CURVE Chapter 1 Nature and Scope of Business Economics 1 Economics originated from Greek work "Oikonomid Oiko-'House' & Nomia, "Management' 2. Till 19" century, Economics was also known as 'Political Economy' 3. Basic Economics problem unlimited wants, and Scarce resources. 4. Resources shall be allocated to their highest valued uses. 5. tconomics is study of transformation of the scarce resources into Gås To satisfy the mostimportant of our infinite wants 6. The book named 'An Inquiry into the Nature and Causes of the Wealth of Nations' (1776), by Adam Smith is considered as the first modern work of Economics. 7. Decision making - process of selecting an appropriate alternative that will provide the mostefficient means of attaining a desired end, from two or more alternative courses of action. 8. Decision making arises only if there is choice available. No alternatives no decision making- e.g.-Cont inue or shut down decision, New Product, Make or buy, Marketing 9. Joel Dean defined Business Economics as the use of economic analysis to make business decisionsinvolving the best use of an organization's scarce resources. 10. Business Economics is referred as Managerial Economics, generally refers to the integration ofeconomic theory with business practice. 11. Economic theories are hypothetical and simplistic in since based on simpl1fying assumptions. 12. Business Economics enables application of economic logic and analytical tools to bridge the gap between theory and practice. 13.Business Economics isnot only valuable to business decision makers, but also useful for managersof not-for-profit' organizations 14.Difference between Micro and Macro Economics Micro Economics Macro Economics Greek work Mikros which means Small Greek work "Makros which means large "Study of particular firm, particular household "Macro Economics examines the individual price, wages, income, individuall Forest andnot the Trees. Large industries, aggregates" - Prof.Mc.Connel particular commodities"- Prof. Boulding  Overall economic phenomeno CAFOUNDATION Itis alsocalled as Income Theory industry firm or individual Behaviorof Theory under calledasPrice described as andeffect Itisalso Business Economicsis Explains cause Science- and principles relationships, Nature of rules 13.The Business Economicsis a -applicationof (a) an Economicsis art Analysis based (b) Business based andMacroEconomyviewpoint Economics Enterprises decision Sciences such as Micro (c) Analysis from Private Integratesthe tools of Economic. (d) Inter-Disciplinary- Econometrics with (e) Statisticsand Mathematics, (1) Normative Economics and positive - 16. Normative or Pure Positive Economics how the things should be economics no It tells us about based on facts and there is It is point of describes 'what ouoht & ambiguity or second view states Prescriptive in nature Descriptive in nature &It to be'. 'what is' judgments /suggestions and effect It passes value It explains cause & offers relationship and advice. there will be no value judgments/suggestions. is opinion based can be Cannot be verifiedbecause it It is based on past dataand and checked not fact based with data Matter of Debate No Matter of debate (Marshall According to Robbins, It is based on welfare economics - Economics is neutralbetween &Pigou) Complete neutrality between ends is, ends. however neither feasible nor desirable. 17. Scope of Business Economics withinthe Microeconomics applied to operational or internal Issues- issues organization and fallwith1n the purviewand control of the management. 1. Demand Analysis 2. Demand Forecasting 3. Cost analysis 4. Theory of Capital 5 and Uncertainty Market Structure and 6. and Investment Decisions Analysis PricingPolicies 7. Resource Allocation 8. Production analysis 9. Inventory Management 10. Profit analysis  PDLEARNIN CA FOUNDATION CURVE b. Macroeconomics applied to environmental or external issues- issues out of preview of anorganization The major macro-economic factors relate to 1) The type of economic system. 2) Stage of business cycle. 3) The general trends in national income, employment, prices, saving and investment. 4) Government s economic policies like industrial policy, competition policy, monetary and fiscalpolicy. price policy, foreign trade policy and globalization policies. 5) Working of financial sectorand capital market. NO 6) Socio-economic orqanizations like trade unions, producer and consumer unions and cooperatives. 7) Socialand political environment. Central Economic Problems 1. Allcountries, without exceptions, face the problem of scarcity because their resources are limited and these resources have alternative uses. 2. Ifa resource has only a single use,then also the economic problem would not arise. 3. The central economic problem is further divided into four basic economic problems. a) What to produce? Which goods and in what quantities b) How to Produce? Method of production, (labour- intensive or capital - intensive) c) For whom to produce? How the G&5 should be distributed among members of the society.Also shares of different people in the national product. d) What provisions (if any) are to be made for economic growth? -saving and investment 4. Understanding different types of Economies Particular Capitalist Socialist Mixed Economy economy economy Also Known as Free market Karl Marx and Depends on both economy or Frederic marketsand govt. laissez-faire Engels in their eçonomy work.The Communist Manifesto published in 1848  CA FOUNDATION PD LEARNING CURVE Private Ownership Collective Include the best Most imp Feature Ownership/ Public featuresof both ownership the controlled Other points Private economy and the property is the market economy mainstay. whileexcluding the Profit motive is its demerits of both. driving force How CEP Impersonal forces of aresolved market demand and supply or the price mechanism What To Decided by consumrs Decided by CPE produce How to Cost of production produce minimum. Labor or capital Intensive For Whom to Those who have buying produce capacity What Depends upon level of provisionare interest rate for to be made consumer and rate of for economic return in Market for growth? business firm 5. Characteristics of each type of economy Capitalist economy Socialist economy Mixed Economy a. Right to a. Collective Ownership of a. Government itself private means of production by must run important property state however, small farms, and selected b. Freedom of workshops &trading firms industries and enterprise whichmay remain in private eliminate the free C. Freedom of hands. play of profit motive economicchoice b. Profit- motive and self and self- interest. d. Profit Motive interest arenot the e. Consumer driving forces Sovereignty C. The resources are f. Competition used to achieve Absence of certain socio  Government economic objectives. Interference d. Centrally planned economy e Absence of Consumer Choice f. Relatively Equal Income Distribution g. Minimum role of Price Mechanism orMarket forces h. Absence of Competition 6. Merits of each type of economy Capitalist economy Socialist economy Mixed Economy a) Self-regulating through a) Equitable distribution of a) Economic freedom and price mechanism. wealth and income existence of private property b) Rewards efficiency and b) Rapid and balanced b) Price mechanism punishes inefficiency. economicdevelopment c)_Consumer sovereignty and c) Faster economic growth ct Planned Economy freedom of choice. d) Optimum allocation of d) Minimum Wastage and d) Appropriate incentives resources optimum utilisation of e) Encourages enterprise and e) Operative efficiency. resource risk taking. f) Lower cost of production e) Unemployment is I Advantages of economic Better standard of living minimized, planning of consumers f) Absence of profit motive 9 Comparativelygreater b) Incentive for innovation 9Right to work and minimum economic and socialequality standard of living and freedom and Technological progress. i) Right to private Property h) High Social security ) No cut throat competition ) No costs for collecting and processingof information 7. Demerits of each type of economy Socialist economy Mixed Economy Capitalist economy a) Inefficiency and delays, corruption, a) Excessive controls a) Precedence of property the private sector. red-tapism, favoritism, rights over humanrights. b) All material means of production b) Poor implementation b) Inequality and social are under the control and direction c) Undue delays injustice of state. c) Wide differences in economic opportunities. c) Takes away right of privqte represent the property. d) Does not PAGE|5  CA FOUNDATION real needs of the society. d) No incentive for hard work LEARNING CURVE Exploitation of labour e) Administered prices /y/nnlta ) )Consumer sovereignty is a f) State monopolies become myth uncontrollable g) Misallocation of resources g) Consumers have no freedom of h) Less of merit goods choice. ) Unplanned production. h) No importance to personal Waste of productive efficiency and productivity. Tesources i) The extreme form of socialism is k)Fornation of monopolies not at all practicable DEnvironmental degradation.