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