Scope of Business Economics

The branch of Business Economics covers all the issues which any business owner or firm can face concerning the management of the organization. Several factors can affect the working of a business, ranging from internal matters to external issues such as the environment. 

Since this branch of study covers a wide spectrum of possibilities in business management, we can say that the scope of the subject is large. There are two branches in Business Economics, namely Microeconomics which deals with the internal matters of a firm and Macroeconomics which studies the external factors. 

In this article, we will go through both these sections and understand the scope and importance of Business Economics.

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Microeconomics: The Scope Of Business Economics 

Microeconomics is the study of those issues related to a firm that is internal or operational and therefore, within the jurisdiction of the management. A part of Business Economics includes the analysis of these matters. 

A few examples of business decisions can include the type of business, size, prototype design, cost determination, promotional techniques, infrastructure, etc. A lot of these decisions require the decision-makers to use the following theories of Business Economics to come to a unified understanding:

1. Analysis And Forecasting of Demand

Analysis of demand is a method by which economists understand the demand curve of a market. It is about understanding the consumer's behaviour, their preferences and the effects of changes in demand with respect to changes made in the company's plan. Some factors which influence demand are the cost of the product, the quality of the product concerning the tastes and preferences of the buyers and the income of the buyers. 

Forecasting of demands is a technique by which economists predict the demand for a certain good in advance. This data helps the company to manufacture its products accordingly. This analysis is done by studying the past behaviour of the buyer.

The study of Business Economics provides scientific tools and knowledge for forecasting. Thus here we see an instance of the scope and importance of Business Economics. 

2. Analysis of Production and Cost

When it comes to production, a business analyst has a couple of important responsibilities. 

These include the below points. Take a look.

• Decide the optimum quantity of the products keeping the firm's objectives in mind.

• Ensure that the firm does not face any losses. With product analysis, a firm can decide on the appropriate technology required to meet the output demands efficiently. 

On the other hand, a study of cost analysis lets the firm know who changing periods of production, size of the factory, etc. will affect their expenditures. By combining these ideas, a firm can achieve the optimum balance between the maximum output for minimum investment. Here too, we find the extent or scope of Business Economics.

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3. Managing Inventory

In order to reduce the costs of maintaining inventories, business economists use techniques such as ABC analysis and mathematical models and help the firm decision of the optimum number of inventories.

4. Understanding Markets and Pricing 

Market analysis is an essential part of Business Economics which lets the firm understand the degree of competitiveness in a market. This information helps them chart proper policies and determine the right prices.

Price theory helps the firm understand the process of cost determination keeping the market situation in mind. This theory is an area where the scope and importance of Business Economics are highly noticeable.

5. Allocation of Resources

To understand the best way to utilize the company's resources, analysts use linear programming, which is a part of the scope of Business Economics.

6. Deciding Capital and Investments

Understanding the proper usage of funds is very crucial for a firm. Business Economics gives you access to a series of scientific criteria which makes capital allocation decisions more efficient. Thus we realize the scope and importance of Business Economics.

7. Profit and Risk Analysis

Knowledge of Business Economics helps in maintaining steady profits in uncertain situations while keeping the risk factor low. 

Macroeconomics: The Scope Of Business Economics

The Macroeconomics branch of Business Economics studies the effects of external factors on businesses, such as: 

• Stage of the business 

• Economic environment 

• Trends in national income and employment rates

• Government's regulations 

• Capital market conditions 

• Socio-economic and political organizations 

Since these factors are beyond the control of the firm's management, they must understand their impact to reduce losses. 

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Solved Example 

Q. Define Business Economics and Explain the Scope of Business Economics. 

Ans: Business Economics is the study of all the factors which affect the working, management and prosperity of a business or firm. The scope of Business Economics is large as it deals with both internal factors within the business as well as factors that are beyond the business owner's control. 

Did You Know? 

• Demand Analysis is a type of behavioural science as it aims to understand the consumer's mindset and how their buying patterns change based on a shifting market scenario.

• A business economist is in high demand in any firm because he/she provides crucial scientific feedback that is required before taking any important decision. This fact reflects the scope and importance of Business Economics.