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Give the concept of economics.
Ans. Economics: There has been a lot of controversy among economists about the subject matter of economics. The subject matter of economics has been defined in numerous and conflicting manners, which has created a confusion about the nature and scope of economics.
‘Political economy is said to have strangled itself with definition.’
Whenever six economists are gathered, they have seven opinions.’
‘Economics is an imperfect science.’
A group of economists which includes Richard Jones, Von Mises, J.M. Clark and Gunnar Myrdal, etc. think that any attempt to define economics is useless and a futile exercise. In their views, economics is a continuously developing process which cannot be bounded into the limits of definition. It may constrain its pace of development.
Apart from the above discussion, the importance of defining economics cannot be ignored. Broadly we can classify different definitions of economics into five parts as follows:
1. Wealth definitions. 2. Welfare definitions.
3. Scarcity definitions. 4. Definitions based on witlessness.
5. Growth oriented definitions.
Or ‘Business economics is economics applied in decision-making’. Explain.
Or What is business economics? How does it differ from traditional economics?
Ans :- Meaning of Business Economics: The basic function of management of business and industrial enterprise is to achieve the objectives of the organisation. To fulfil this responsibility, the management has to take many decisions on a variety of business issues. Decision-making is the process to select a particular course of action from among a number of alternatives. Clear understanding of the technical and environmental conditions under which decision maker should have good knowledge of those aspects of economic theory and its tools of analysis which are involved in the process of decisionmaking, is necessary.
Business economics is concerned with those aspects of economics and its tools of analysis which are used in the process of decision-making of business enterprise.
The term business economics has been defined as under:
Business economics is the economics applied in decision-making. It is a special branch of economics bridging the gap between abstract theory and business practice!
‘Business economics is the integration of economics theory with business practice for the purpose of facilitating decision-making and forward planning by management.’
‘Business economics consists of the use of economic modes of thought to analyse business situations.’
‘Use of economic analysis in formulating policies is known as business economics.
On the basis of above definitions, it can be concluded that business economics is not a new discipline or a new branch of economics. It is simply the process of application of the principles, techniques and
concepts of economics in order to solve the business problems of a business and industrial enterprise.
Difference from Traditional Economics: Traditional economics is a study of
Co economics is the study of how resources are allocated in a society the behaviours of firms in
as a whole and deals with the body of the principles itself. But theory and practice.
business economics is the study of how resources should be allocated in a particular firm and involve applications of economic principles to the problems of the firm.
Discuss some characteristics of business economics.
Ans. Characteristics of Business Economics: On the basis of study of meaning and definition of business economics, characteristics of business economics may be summarised as follows:
1. Business Economics is Normative Economics: Business economics belongs to normative economics. Business economics is concerned with what management should do under particular circumstances. It determines the goals of the enterprise and then develops the ways to achieve these goals. It deals with future planning, policy making, decision-making, full utilisation of the available resources of the enterprise.
2.Business Economics Uses Theory of a Firm: Business economics is pragmatic. It avoids difficult issues of economic theory. It tries to solve the business problems in their day-to-day functioning.
3. Business Economic Theory in a Firm: Business economics uses those economic concepts and principles which are known as the ‘theory of economics’ of the firm. Thus, the scope of business economics is narrower than that of pure economics theory.
4. Business Economics is Microeconomics: Business economics is.microeconomics in character because it is concerned with smaller units of the economy. It studies the problems and principles of an individual business firm of an individual industry. It assists the management in forecasting and evaluating the trends of market.
5.Main Aim of Business Economics is to Help the Management: Main aim of business economics is to help the management in taking correct decisions and preparing plans and policies for future.
6. Business Economics Takes the Help of Macroeconomics Also: Though business econom is microeconomics in character and deals with the study of problems of an individual firm or inau but it takes the help of macroeconomics also because it needs an understanding of the major issu macroeconomics in which an individual firm or an industry has to work. Knowledge of many iss macroeconomics is necessary for the successful management of a firm or an industry. These isst business cycles, taxation policies, industrial policy of the government, price and distribution p wage policies and anti-monopolistic policies, etc.
Explain about the nature of business economics.
& Or Discuss the nature of business economics.
Or ‘Is business economics a science or an art or both’? Discuss.
Ans. Nature of Business Economics: The nature of business economics may be explained paragraphs given ahead:
Business Economics is a Science: Science is that branch of systematic knowledge which establishes a relationship between causes and effects of an event. It studies why and how a partir thing happens? What are the effects of an event? What will happen in a particular case or a particular condition? From this point of view, we can say that business economics is also a science because it establishes relationship between causes and effects. It studies the effects of a change in price of a common factor and force on the demand of a particular product. It also studies the effects and implications of the plans, policies and programmes of a firm on its profit.
2. Business Economics is an Art: Art is that branch of systematic knowledge which develops the best way of doing things. It also develops the ways for attainment of a particular object. From this point of view, business economics may also be called an art. Because it also develops the best way of doing things. It helps management in the best and most efficient utilisation of limited economics resources on the firm. It helps in selecting the best alternative among different alternatives. It helps management in the achievement of organisational objectives.
3. Business Economics is a Normative Science: There are two types of science, le. normative science and positive science. Positive science studies what is being done. Normative science studies what should be done. From this point of view, it can be concluded that business economics is a normative science because it suggests what should be done under particular circumstance. It determines the goals of the enterprise and then develops the way to achieve these goals.
4. Business Economics is a Microeconomics: Entire study of economics may be divided into two segments: (a) Macroeconomics and (b) Microeconomics, Macroeconomics is concerned with the whole segment. It studies the trends, conditions and problems of a particular business firm. From this point of view, it can be said that business economics is microeconomics in character because it is concerned with the problems of an individual or industrial firm.
Distinguish between economic theory and business theory.
Ans. Distinction between Economic Theory and Business Theory: Both, the business theory and economic theory are closely related with each other. Some persons are of the view that business. theory and economic theory are the same but this view is not true. There are major differences between economic theory and business theory. These differences can be explained as under:
1. Economic theory is a system of inter-relationships while busines theory is an application of inter-relationships.
2. Economic theory deals with the study of concepts, principles and laws of economic analysis whereas business theory deals with the application of these economic principles and laws to the problems of an individual firm the aim of a business firm.
3. Economic theory deals with the body of principles. But business theory deals with the application of certain principles so as to solve the problems of a firm.
4. Business theory studies only about individual firm while economic theory deals with a study of
individual consumers as well as individual firm.
5. Economic theory has the characteristics of both micro and macroeconomics. But business
theory is essentially micro in character.
6. Business theory studies economic and non-economic aspects whereas economic theory studies only economic aspects of the problem.
7. Business theory deals with a study of only profit theories whereas economic theory deals with a study of distribution theories of rent, interest, wages and profit.
8. Economic theory is based on certain assumptions. But in business theory, these assumptions disappear due to practical situations.
9. Economic theory is both positive and normative in character but business theory is essentially normative in nature.
Thus, it can be concluded that economic theory is systematic and logical but business theory is pragmatic. Both are closely related to each other,
In what respects does business economics owe to economics?
Or Write a short note on micro versus macroeconomics.
Or Distinguish between microeconomics and macroeconomics.
Ans. Business economics has been described as economics applied to economics. Economics has two main branches:
1. Microeconomics: It studies the behaviour of the individual units and small groups of such units. It is a study of particular firms, particular households, individual prices, wages, incomes, individual industries and particular commodities. The roots of business economics spring from macroeconomics theory. In price theory, demand concepts, elasticity of demand, marginal cost and marginal revenue, the theories of market structures are sources of the elements of microeconomics which business economics draws upon. It also makes use of well known models in price theory.
2. Macroeconomics: It deals with the behaviour of large aggregates in the economy like total saving, total consumption, total income, total employment, general price level, etc. Macroeconomics is also related to business economics. The environment in which a business operates, fluctuations in national income, changes in fiscal and monetary policies and variations in the level of business activities all these affect management while taking business decisions.
Explain the use of incremental principle and equi-marginal principle.
Ans. Incremental Principle: This concept is closely related to the marginal costs and marginal revenues of economic theory. It involves estimating the impact of decision alternatives on costs and revenues by emphasising the changes in total cost and total revenue resulting from changes in prices, products and procedures. The two basic components of incremental reasoning are: (a) Incremental cost, i.e. the change in total cost resulting from a particular decision and (b) Incremental revenue, i.e. the change in total revenue resulting from a particular decision.
Equi-marginal Principle: It deals with the allocation of the available resources among the alternative activities. According to this principle, ‘An input should be so allocated that the value added by the last unit is the same in all cases.? It says that ‘if a person has a thing which he can put to several uses, he will distribute it among these uses in such a way that it has the same marginal utility in all.
Distinguish between risk and uncertainty.
Ans. Risk and Uncertainty: These are synonyms to each other but in reality, they are different.Knight stated that uncertainty is an unknown risk and risk is a measurable uncertainty. Difference between risk and uncertanity can be explained as:
1. Probability of Quantitative Measurement: Risk is measurable and it can be quantitatively measured but uncertainty cannot be measured in any form.
2. Insurability: The risk is measurable. These are some risks that can be fully covered by taking insurance policies and on the other hand, insurance of uncertainties is not possible.
3. Transferability: A risk can be transferred into another risk but an uncertainty cannot be transferred.
4 Element of Cost: Cost of production includes the cost of risk whereas uncertainty is not include in the cost of production.
5. Subjective and Objective: Risk is objective but uncertainty is subjective as risk can be meas while uncertainty can only be realised.
6. Knowledge of Alternatives: In risk, all the possible alternatives of a problem are know economists but in case of uncertainty, previous knowledge is not possible.
7 Nature of Decisions: Decisions taken under the conditions of uncertainty are more impo than those taken under the conditions of risk.