FEATURES OF BUSINESS ECONOMICS• BUSINESS ECONOMICS IS CONCERNED

WITH DECISION – MAKING OF ECONOMIC NATURE.

• BUSINESS ECONOMICS IS GOAL ORIENTED AND PRESCRIPTIVE.

• BUSINESS ECONOMICS IS PRAGMATIC.IT IS CONCERNED WITH THOSE ANALYTHICAL TOOLS WHICH ARE USEFUL IN IMPROVING DECISION –MAKING.

FEATURES OF BUSINESS ECONOMICS• BUSINESS ECONOMICS BRINGS

FORTH SOLUTIONS OF PROBLEMS, PROVIDES NECESSARY CONCEPTUAL TOOLS AND HELPS THE DECISION MAKER BY PROVIDING MEASUREMENT OF VARIOUS ECONOMIC ENTITIES AND THEIR RELATIONSHIP.

DEFINTIONS

• “MANAGERIAL ECONOMICS IS CONCERNED WITH THE WAYS IN WHICH MANAGERS SHOULD MAKE DECISIONS IN ORDER TO MAXIMISE EFFECTIVENESS OR PERFORMANCE OF THE ORGANISATIONS THEY MANGE.”

DEFINTIONS

• ECONOMICS IS A FUNDAMENTAL ACADEMIC SUBJECT WHICH HELPS TO UNDERSTAND AND TO ANALYSE PROBLEMS OF BUSINESS DECISION MAKING.”

BUSINESS ECONOMICS IS THE INTEGRATION OF ECONOMIC THEORY WITH BUSINESS PRACTICES FOR THE PURPOSE OF FACILITATING DECISION MAKING AND FORWARD PLANNING BY THE MANAGEMENT.”

MANAGEMENT DECISION PROBLEMS CAN BE SOLVED BY THE APPLICATION OF ECONOMIC THEORY AND TOOLS OF DECISION SCIENCES.

INTEGRATION OF ECONOMIC THEORY

AND BUSSINESS PRACTICE • WITH THE HELP OF ECONOMIC THEORY

WE CAN UNDERSTAND THE ACTUAL BEHAVIOR OF BUSINESS.• BUSSINESS ECONOMICS ATTEMPTS TO

ESTIMATE AND PREDICT THE ECONOMIC QUANTITIES AND RELATIONSHIPS.

INTEGRATION OF ECONOMIC THEORY AND BUSSINESS

PRACTICE

• DECISION MAKING AND FORWARD PLANNING IS DONE WITH THE HELP OF ESTIMATED ECONOMIC QUANTITIES AND RELATIONSHIPS.• THE MANAGERS CANOT IGNORE THE

ENVIRONMENT WITHIN WHICH THEY OPRATE.

NATURE OF BUSINESS ECONOMICS• BUSINES ECONOMICS IS MICRO

ECONOMIC IN NATURE: THE UNIT OF STUDY IS A FIRM.• BUSINESS ECONOMICS CONCENTRATES

ON MAKING ECONOMIC THEORY MORE APPLICATION ORIENTED • BUSINESS ECONOMICS IS MORE

PRAGMATIC.

• BUSINESS ECONOMCS TAKES THE HELP OF MACRO ECONOMCS ALSO SO AS TO UNDERSTAND THE EXTERNAL CONDITIONS WHICH ARE RELEVANT TO THE BUSINESS.

IN NUTSHELL IT CAN BE CONCLUDED THAT BUSINESS ECONOMICS REFERS TO THE APPLICATION OF ECONOMIC THEORY AND THE TOOLS OF ANALYSIS OF DECISION SCIENCE TO FIND THE OPTIMAL SOLUTION TO BUSINESS DCISION PROBLEMS.

ECONOMICS• BE ALL AND END ALL OF THE

HUMAN EFFORTS IS CONSUMPTION.• THE WHOLE AND SOLE PURPOSE

OF ECONOMY IS PRODUTION OF GOODS SERVICES FOR CONSUMPTION NOW IN FUTURE

ECONOMICS• MACRO ECONOMICS IS THE

STUDY OF THE BEHAVIOUR OF THE ECONOMY AS A WHOLE• IT CONTRASTS WITH MICRO ECO

WHICH STUDIES: INDIVIDUAL PRICES, QUANTITIES, MARKETS

BASIC ECONOMIC PROBLEM

• “ECONOMICS IS A SCIENCE WHICH STUDIES HUMAN BEHAVIOUR AS A RELATIONSHIP BETWEEN ENDS AND HUMAN RESOURCES WHICH HAVE ALTERNATIVE USES”

PROF ROBBINS• WANTS ARE UNLIMITED MEANS TO SATISFY

WANTS ARE LIMITED BUT MEANS OR RESOURCES CAN BE PUT TO ALTERNATIVE USES.

BASIC PROBLUMS OF AN ECONOMY

•WHAT TO PRODUCE.• HOW TO PRODUCE.• FOR WHOM TO PRODUCE.•WHAT PROVISION BE MADE

FOR ECONOMIC GROWTH.

“HE WHO CAN NOT SEE BEYOND THE DAWN WILL HAVE MUCH GOOD WINE TO DRINK AT NOON, MUCH GREEN WINE TO CURE HIS HEADACHE AT DUSK AND ONLY RAIN WATER TO DRINK FOR THE REST OF THE DAYS”

“ECONOMICS IS THE STUDY OF HOW MAN AND SOCIETY CHOOSE, WITH OR WITHOUT THE USE OF MONEY, TO EMPOY SCARCE PRODUCTIVE RESOURCES WHICH COULD HAVE ALTERNATIVE USES, TO PRODUCE VARIOUS COMMODITIES OVER TIME ,AND DISTRIBUTE THEM FOR CONSUMPTION NOW AND IN THE FUTURE AMONG VARIOUS PEOPLE AND GROUPS”

PROF SAMUELSON

MICRO ECONOMICS

• STUDIES THE BEHAVIOUR OF INDIVIDUAL WHICH AND SMALL GRUPS – INDIVIDUAL CONSUMAR PRADUCER FIRM• HOW MUCH TO CONSUME• WHAT TO PRODUCE –PRODUCTION

STRUCTURE

MICRO ECONOMICS•HOW TO PRODUCE –LOCATION•WHERE TO SELL•AT WHAT PRICE

• HOW THE MARCKET FUNCTIONS•WORKING OF A FREE

MARCKET ECONOMY• ROLE OF PRICE MECHANISM

IN ALLOCATIONS PRODUCTIVE RESOURCES-INVISIBLE HAND

• HOW A COMPLETELY PLANNED ECONOMY WORKS• SOCIETY AND EFFICIENCEY

ECONOMIC BENEFIT COMES FROM SELF INTRESTED ACTIONS OF INDIVIDUALS.

BASIC ISSUES OF MICRO ECONOMICSSTUDIES THE ECONOMIC ACTIONS AND BEHAVIOURS OF INDIVIDUAL UNITS SUCH AS

• INDIVIDUAL CONSUMER.• INDIVIDUAL PRODUCER(FIRM).• THEROY OF PRODUCT PRICES.• STUDY OF DIFFERENT TYPE OF MARCKETS.• DISTRIBUTIONAL THEORIES.• ECONOMIC EFFICIENCEY.

IMPORTANCE AND USES OF MICRO ECONOMICS

• EXPLAINS HOW A FREE MARKET ECONOMY FUNCTIONS

• HOW THE GOODS AND SERVICES PRODUCED ARE DISTRIBUTED AMONG VARIOUS PEOPLE FOR CONSUMPTION.

• HOW FACTORS OF PRODUCTION ARE PAID

• WHAT ARE THE GAINS FROM INTERNATIONAL TRADE?

FREE MARKET ECONOMY OR CAPITALIST ECONOMY CHIEF FEATURES

• RIGHT OF PRIVATE PROPERTY• FREEDOM OF ENTERPRISE• FREEDOM OF CHOICE BY CONSUMERS

(CONSUMER SOVERIGNITY)• PROFIT MOTIVE• COMPETITION• ROLE OF PRICE MECHANISM• (IMPERSONAL FORCES SOLVE PROBLEM

OF ECONOMY)

• MARKETS STAND FOR THE FORCES OF DEMAND AND SUPPLY.

• EACH INDIVIDUAL KNOWS WHERE HIS SELF INTREST LIES.

• DECIDING WHAT TO PRODUCE.• DECIDING HOW TO PRODUCE.• DECIDING FOR WHOM TO PRODUCE.• DECIDING ABOUT RATE OF GROWTH. • SOLVING ALL PROBLEMS AT THE SAME

TIME

CONSUMER SOVEREIGNITY• IN A FREE MARKET ECONOMY CONSUMER IS

SOVERPIGN.• CONSUMER PLACES THE ORDER, DECIDES WHAT

SHOULD BE PRODUCED.• CONSUMERS AUTHORITY ARISES FROM HIS

INCOME HIS ABLITTY TO PAY IS LIMITED.• HIGH PRESSURE SALESMANSHIP PUTS A CHECK

ON CONSUMAR SOVEREIGNITY –RADIO, TELEVISION, NEWS PAPERS, HOARDING AT RAILWAY STATION AIRPORT, COLONIES, MARKET PLACE –ALL THESE BOMBORD CONSUMERS

• CONSUMERS SOVEREIGNITY IS INDEED A MYTH

PROBLEMS OF FREE MARKT ECONOMY• DOES NOT ENSURE MAXIMUM SOCIAL

SATISFACTION.• PRINCIPLE OF CONSUMER SOVERIGNEITY

NOT VALID.• ECONOMIC INSTABLITY AND

UNEMPLOYEMENT.• DOES NOT ENSURE HIGH RATE OF ECO.

GROWTH.• DECLINE OF COMPETITION AND ITS

ADUERSE EFFECTS.• CONCENTRATION OF WEALTH AND INCOME

ROLE OF COUNTERVAILING POWER IN CORRECTING THE WEAKNESSES OF FREE MARKET ECONOMY

• TO DAY POWERFUL CORPORATE SELLERS OFTEN FACE EQUALLY POWERFUL CORPORATE BUYERS. THE GIANT STEEL MILL TO THE GIANT AUTO FIRM, THE GIANT PRODUCERS TO THE GIANT SUPERMARKET CHAIN. LARGE FIRMS NO LONGER BARGAINS WITH THE INDIVIDUAL EMPLOYEES, BUT WITH LARGE AND POWERFULL UNIONS.

ISSUES IN MCRO ECONOMICS• WHY A COUNTRY IS POOR OR RICH.

HOW A COUNTRY CAN BECOME RICH?• ROAD TO ECONOMIC PROGRESS AND

HIGH RATE OF GROWTH.• WAHT IS INFLATION; WHY IT TAKES

PLACE.• HOW CAN WE ACHIVE FULL

EMPLOYEMENT• SOCIAL RESPONSIBILITY OF BUSINESS

HOW ARE BASIC PROBLEMS SOLVED

PRICE MECHANISM VS

PLANNING

MACROECONOMIC AGGREGATES• AGGREGATION INVOLVES ADDING APPLES TWO

ORANGES SOLUTION• GROSS DOMESTIC PRODUCT (GIDP)- A MEASURE

OF ECONOMIC ACTIVITY.• AGGREGATE CONSUMPTION- VOLUME OF GOODS

AND SERVICES DEVOTED TO CURRENT-CONSUMPTION DURING A PERIOD.AGGREGATE INVESTMENT-VOLUME OF GOODS AND SERVICES DEVOTED TO CAPITAL FORMATION DURING A PERIOD

• WHOLE SALE PRICE INDEX.• CONSUMER PRICE INDEX.• TOTAL MONEY SUPPLY, BANK CREDIT, FOREIGN

EXCHANGE RESERVS ETC.

GOVERNMENT IN MACRO ECONOMY CLASSICAL VIEW

• LEAVE THE ECONOMY TO MARKETS.• ECONOMY IS ALWAYS IN FULL

EMPLOYEMENT.• SUPPLY CREATES ITS OWN DEMAND• OVER PRODUCTION&UNEMPLOYEMENT ARE

SHORT RUN PHENOMENON• PRICE &WAGE FLEXIBLITY BRING ABOUT FULL

EMPLOYMENT.• NO GOVT. INTERFERECE OR LEAST

INTERFERECE

KEY NESIAN VIEW• 1.INVESTMENT IS HIGHLY VOLATILE.• 2.GOVT TO ACTIVELY PARTCIPATE IN

ECONOMIC LIFE TO CORRECT THE FLUCTUATIONS IN INVESTMENT, CONSUMPHION, SAVINGS, OUTPUT, EMPLOYMENT,INCOMES,HROUGH PRO-ACHIVE MOUETRY AND FISCAL POLICY.