Theory Vs Application of Economics in Business
The subject of Business Economics is a wide study. The study is mainly concerned with the economics of the business. Business Economics particularly bridges down the gap of theoretical knowledge of economics and practical application of the same in the conduct of business.
In this context, we are going to discuss the fundamental aspects of business economics, the division of business economics, and the nature and scope of the same are to be studied.
Definition of Business Economics
In simple terms, we can say that business economics is a concentration of applied economics that deals with the finance, organization, market, and environment-related factors which are primarily faced by the companies or business organizations.
Business Economics studies the key elements of scarcity thus dealing with its concept, the product factors, distribution, and consumption of these resources.
Division of Business Economics - Macroeconomics and Microeconomics
The prevalent theories which we study on economics seem to be simple, while the actual application is a much more complex task. 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.
Microeconomics
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.
Consumer behaviour,
Pricing of products,
Firm’s behaviour,
Pricing of factors,
Industry location, and,
Economic conditions of certain groups of people.
Macroeconomics
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,
National output,
National income,
The external value of the national currency,
Balance of payments,
Balance of trade,
Rate of economic growth,
Level of employment.
Nature of Business Economics
To explain the nature and scope of business economics, it is important to look at it from the following angles.
From the Perspective of Science
Science can be defined as a systematic approach to generating a relationship between 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.
From the Perspective of Microeconomics
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.
Incorporation of Macroeconomic Elements
Although business economics is largely based on the 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.
From the Perspective of Art
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.
Incorporation of Theories of Private Enterprises and Markets
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.
Pragmatic Approach
In comparison to the theoretical nature of the 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.
Interdisciplinary Nature of Business Economics
Business economics has an interdisciplinary approach by involving disciplines from statistics, mathematics, marketing, accounting, etc.
Normative
On a broader basis, economic theory can be described in two ways- normative and positive. Normative science includes judgments 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 judgment. Business economics provides more focus on the normative approach but considers both approaches.
Scope of Business Economics
The scope of business economics can be put under various heads:
Microeconomics which deals with Operational Issues
Macroeconomics applied to environmental issues.
This was an exhaustive study of the preview of Business Economics. The study is segregated into two divisions which we have thus studied. From the academic point of view, theoretical understanding is required, while if you want to opt for business then the practical application of the same study is to be done.
FAQs on Nature of Business Economics
1. Discuss the Nature and Scope of Business Economics in Terms of Microeconomics and Macroeconomics.
To describe the nature of business economics, it is important to understand the concepts of microeconomics and macroeconomics. Microeconomics considers an individual’s perspective in business. For example, any businessman will primarily focus on the profit-making ability and survival of his own business in the market. However, his business is likely to get affected by external factors like tax policies, employment, etc. These external factors constitute the pillars of macroeconomics. Business economics is the practical application of economic theories and is largely based on microeconomics. However, it also considers macro aspects. Therefore, it is best to say that both types of economics explain the nature and scope of business economics.
2. Describe the Nature of Business Economics from the Perspective of Science and Art.
Both science and art perspectives can be used to discuss the nature and scope of business economics. The perspective of science considers the cause-effect relationship in all cases. Business economics can be considered as a blend of decision sciences with economic theories. It considers the scientific approach with a special focus on validity check of the results. The scientific approach of business economics help businessmen to plan out strategies towards their goals.
Art mainly relies on setting up rules and regulations, which are also an integral part of business economics.
3. Explain the Nature and Scope of Business Economics from a Normative Approach.
The economic theory considers both positive and normative approaches. Positive approaches are more scientific and focus more on the cause-effect relationship and less on value judgments. The normative approach considers value judgments, analyses situations, and gives suggestions on the course of action. The nature and scope of business economics notes are considered to be normative. It involves the application of principles of economics in making decisions, forming policies, and future planning. However, business economics also considers the need for decision rules, which is a part of the positive approaches. Therefore, business economics can be considered to be largely normative with certain aspects of positive approaches.