Although the prevalent theories on economics seem to be simple, the actual application is a much more complex area. The managers who are new to the field face the maximum trouble in correlating their recently learned theories and their application in the real world. For such scenarios, the manager needs to know business economics. Business economics is an amalgamation of logical and analytical tools that attempts to solve the differences between the theories and the practice. It is important to study the details of the nature and scope of business economics.
However, for a better understanding of the concepts, it is important to understand the two major parts of economics- microeconomics and macroeconomics.
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Microeconomics is defined as the study of the decision making process of individual units with respect to the proper allocation of their limited resources. These individual units are also called firms or consumers. The focus is directed to individual units or a small number of units instead of a combination of all the units. It provides a restricted picture of the situation and excludes the broader economic environment. The study of microeconomics includes the following topics.
Macroeconomics is defined as the study of the economical behaviour of larger aggregates like total consumption, overall output, and it also considers the shift in the position of these aggregates. Therefore, it encompasses all the decisions made by different consumers and their effect on the overall economy. The study of macroeconomics includes the following topics.
General price and rates of interest,
The external value of the national currency,
Balance of payments,
Balance of trade,
Rate of economic growth,
Level of employment.
Nature and Scope of Business Economics
To explain the nature and scope of business economics, it is important to look at it from the following angles.
Science can be defined as a systematic approach to generating a relationship between the cause and effect. Statistics, mathematics, and econometrics are all considered to be decision sciences. To describe the nature of business economics, it can be considered as an integration of decision sciences with the theories of economics, so that the businesses can strategize their plans to achieve their goals. It follows a scientific approach and also checks the validity of all the results thus obtained.
Looking into the basic differences between microeconomics and macroeconomics, a businessman will certainly first focus on the objectives and the achievements of his own organization. He should target his profit-making abilities and ensure the long-term survival of his company in the first place. Business economics focusses more on the analysis and decision-making abilities of the individual businesses and therefore utilizes the techniques related to the concept of microeconomics.
Although business economics is largely based on microeconomy, the nature, and scope of business economics notes certain concepts of macroeconomics as well. For example, although any business will mainly focus on its survival in the market and on its profits, it cannot function in isolation. External factors like tax policies, the country’s economy, employment rate, income, etc., are considered within the purview of macroeconomics.
Therefore, although a business is mostly considered as a segment of microeconomics, the nature and scope of business economics also contain elements of macroeconomics.
The concept of art can also be used to discuss the nature and scope of business economics. It also involves the practical application of regulations and rules to move forward towards the goals of the company.
Business economics considers the resource allocation theory prevalent in the private enterprise economy. Therefore the nature and scope of business economics notes also include market and private enterprise theories.
In comparison to the theoretical nature of microeconomy, business economics has a pragmatic approach. It is more related to finding efficient solutions to the problems faced by companies in the real world.
Business economics has an interdisciplinary approach by involving disciplines from statistics, mathematics, marketing, accounting, etc.
On a broader basis, economic theory can be described in two ways- normative and positive. Normative science includes judgements that have values. It analyses the circumstance and provides suggestions on the course of action. A positive approach establishes a scientific approach to define the cause-effect relationship without the involvement of any value judgement. Business economics provide more focus on the normative approach but consider both approaches.