Transcript ICT1

CONTENTS
1.1 Introduction
1.2 Main features of Business Economics
1.3 Scope of Business Economics
1.4 Role and Responsibilities of a Business
Economist
1.5 Importance of Business Economics
1.1 Introduction
Business economics is also known as managerial economics. It comprises of two words
management and economics. Thus, it is concerned with the management of business.
In general, managerial economics is concerned with the application of economic
theory to the decision-making process of a business enterprise. In other words, it
provides a tool box of methods and techniques facing business decision problems.
1.2 Main features of Business Economics
Business economics has certain features which are as follows:
Micro in nature: Business economics is micro-economics in nature. This is due to the
study of business economics mainly at the level of a firm. Generally a business
manager is concerned with problems of his own business unit. He does not study the
economic problems of an economy as a whole.
Basis of theory of markets and private enterprise: Business economics largely uses
the theory of markets and private enterprise. It uses the theory of the firm and
resource allocation of private enterprise economy.
Pragmatic in approach: Business economics is pragmatic in its approach. It does not
involve itself with the theoretical controversies of economics. It suggests how
economic principles are applied for the formulation of various programmes and
policies.
Normative in nature: Business economics is also called normative economics. It
prescribes standards or norms for policy making. Business economics is prescriptive
rather than descriptive in nature.
Macro analysis: Macro economics deals with the principles of economic behaviour
for the economy as a whole. A business unit operates within some economic
environment which in turn shaped by the behaviour of the economy as a whole. He
has to adjust himself to the uncertainties of the business in a wise manner.
Conceptual: Business economics is conceptual. It means that conceptual tools can be
used for the application of quantitive techniques. In short, it is used to understand
and analyse the decision problems.
Economic concepts: Managerial economics uses economics concepts and principles.
Thus, it is useful to apply economic theory to practical problems.
1.3 Scope of Business Economics
The scope of managerial economics can be explained through following points:
Demand Analysis and Forecasting: The foremost aspect regarding its scope is
demand analysis and forecasting. A business firm is an economic unit which
transforms productive resources into saleable goods. A firm must decide its total
output before preparing its production schedule and deciding on the resources to be
employed. Demand forecasts serves as a guide to the management for maintaining its
market share.
Cost and Production Analysis: A firm’s profitability depends much on its costs of
production. A wise manager would prepare cost estimates of a range of output,
identify the factors causing variations in costs and choose the cost-minimising output
level. Production processes are under the charge of engineers but the business
manager works to carry out the production function analysis in order to avoid
wastages of materials and time.
Profit Management: each and every business firms are tended for earning profit.
Economists tell us that profits are the reward for uncertainty bearing and risk taking. A
successful business manager is one who can form more or less correct estimates of costs
and revenues at different levels of output. The more successful a manager is in reducing
uncertainty.
Pricing Decisions, Policies and Practices: Another task before a business manager is
the pricing of a product. Since a firm’s income and profit depend mainly on the price
decision. The important topics covered in this field of study are: Market structure
analysis, Pricing practices and Price forecasting.
Capital management: Another challenging problem for a modern business manager is
of planning for capital investment. Investments are made in the plant and machinery
and buildings which are very high. Therefore, capital management requires top level
decisions. It means capital management i.e. planning and control of capital expenditure.
Capital and Investment: Capital and investment are the life and blood of business.
Therefore, it highlights proper selection of investment projects, efficient allocation of
capital and minimising the possibility of under capitalization and over capitalization.
Environmental Issues: The scope of managerial economics can also be examined in the
context of social and political environment of business firms.
1.4 Role and Responsibilities of a Business Economist
A business economist plays on vital role in modern business. He helps the management
of a firm in decision making and forward planning by using his skills. Accordingly, their
responsibilities have considerably increased.
1.4.1 Role of a Business Economist
Study of the Business Environment: Business economist takes into account business
environment of the country. He takes into consideration business cycles, rate of
growth of national income and distribution of income, budgetary trends and
prospects of new products.
Business Plan and Forecasting: The business economists can help the
management in the formulation of their business plan by forecasting and economic
environment. The management can easily decide the timing and locating of their
specific action. The business economist has to interpret the national economic
trends and industrial outlook for their relevance to the firm in which he is working.
Study of Business Operations: The business economist can also help the
management in decision making relating to the internal operations of a firm i.e. in
deciding about price, rate of operations, investment and growth of the firm for
offering this advice. The economist has specific analytical and forecasting
techniques which yield meaningful conclusions.
Economic Intelligence: The business economists also provide general intelligence
services by supplying the management with economic information of general
interest. They can talk intelligently in conference and seminars. They also supply the
facts and figures for preparing and annual reports of the firm.
Specific Functions: Business economists are now performing specific functions as
consultants also. Their specific functions are demand forecasting, industrial market
research, pricing problems of industry, production programmes, investment analysis
and forecast. They also offer advice on trade and public relations, primary
commodities and capital projects in agriculture, industry, transport and tourisms
and export environment.
Demand for product: The managerial economist studies the demand pattern for
their product. It takes into account various factors that influence demand like
purchasing power, tastes, preference and habits.
1.4.2 Responsibilities of a Business Economist
A business economist is well familiar with his responsibilities. He must keep in the mind
objective of making a reasonable profit on the invested capital in his firm. The
responsibilities of business economists are as follows:
Making Successful Forecasts: Management have to take decisions concerning the
future which is uncertain. This uncertainty cannot be eliminated the future which is
uncertain. This uncertainty cannot be eliminated altogether but it can be reduced
through scientific forecasts of the economic environment to his employers. This is
required for business planning. Is a business economist can make successful forecast
about business trends, the management will hold him in great esteem. A wise managerial
economist will revise his business. He assists the management in making the needed
adjustments. This will help him to strengthen his position as a member of the
managerial team.
Maintaining Relationship: The Business economist must establish and maintain
contacts with individual who are specialists in the different fields. He must join
professional associations and subscribe to the journals giving him fresh and latest
information.
Earningful Status on the Managerial Team: A business economists has to participate
in decision making and forward-planning. For this he must be able to earn full status on
the business team. He must be prepared to take up assignments on special project also.
He should be able to express himself clearly so that his advice is understood and
accepted.
1.5 Importance of Business Economics
The study of business economics is useful in the decision making and planning. It
tries to use the resources optimally and to draw maximum benefit. Following are
some of the important aspects of business economics:
Application of Economics: Business economics makes the use of economic tool for
decision making. It makes necessary changes in tools to suit business environment.
Solution to Economic Problems: The business is wide in modern days which are
full of economic problems. Therefore, business economist helps in solving economic
problems of resource management, price and wage payment.
Utilization of Natural Resources: The demand of various products goes on
increasing as there is rapid increase of population. Increased population puts stress
on resources. Therefore, business economics provides solution to such problems i.e.
proper utilization of natural resources.
Social Benefits: Business economists help the management to provide social
benefits to consumers, employees along with society. In modern business,
management provides many social benefits to its employee. These benefits are like
higher education facilities, health facilities and housing facilities etc.
Business Decisions: Business economics undertakes many business decisions
which consists of :
(i) Input-output combination
(ii) What type of goods and services should be produced?
(iii) Fixation of prices
Advertising of New Products: Business economics helps the firm to adopt different
methods of sales promotion. It includes advertisement in TV, Radio, magazines,
newspaper etc.
Miscellaneous Works: The business economics is useful in many other activities of
firm. He performs an active role in the following:
(a) Demand forecasting and forward planning
(b) To minimizes risks and uncertainties
(c) Guidance to control cost, price and quality.
REFERENCE:
Lekhi R.K. “BUSINESS ECONOMICS”
KALYANI PUBLISHERS- NEW DELHI- 2011