Business Economics

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What is economics?• study of how people choose to use

resources.• Resources include the time ,talent of

people, the land, buildings, equipment, and other tools on hand,

• the knowledge of how to combine them to create useful products and services.

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• It is the social science that studies • the production, • distribution and • consumption of goods and services.

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• People use their resources to improve their well-being.

• Well-being includes the satisfaction people gain from the goods and services they choose to consume,

• from their time spent in leisure and with family and community as well as in jobs,

• and the security and services provided by the government.

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• In short, economics includes the study of labour, land, and investments, money, income, and production, and of taxes and government expenditures.

• Economists seek to measure well-being, to learn how well-being may increase overtime, and to evaluate the well-being of the rich and the poor.

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Definitions• Definitions regarding the science of

Economics have been changing from time to time.

• These definitions can be broadly grouped into

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• 1. Wealth definition• 2. wealth and welfare definition• 3. Scarcity definition• 4. Modern definitions

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Wealth definition

• Adam Smith, the father of economics, defined economics as the science of wealth.

• According to him, economics studies the nature of wealth and the laws which govern its production, distribution and exchange.

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Criticism on wealth definition• Wealth definition was severely criticized by

economists like Ruskin and Carlyle.• They described economics as an immoral

and bastard science because it teaches selfishness and acquisition of wealth.

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Wealth and welfare definition• Economists like Prof. Marshall and A.C.

Pigou gave the definition.• According to him, Economics is both a

study of wealth and welfare.• The purpose of economics is to promote

the well being or welfare of human beings through the study of wealth.

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criticism

• Wealth and welfare definition was criticised by Lionel Robbins.

• According to him, economics has nothing to do with welfare because it is a subjective concept.

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Scarcity definition

• In his famous book “The nature and significance of Economic Science”, Lionel Robbins gave the new definition.

• According to him Economics studies the economic problem of scarcity.

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Modern definitions• Keynes employment stability centered

definition: Economics is the study of the administration of scare resources and also of the determinants of income and employment. It studies the causes of economic fluctuations and how economic stability could be achieved.

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Modern definitions

• Benham’s definition: He defines economics from the point of view of National Income.

• Economics is a study of the factors affecting the size, distribution of a country’s National Income.

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Economic activity• economic activity

is undertaken to earn a living• economic activities is that what we do to

satisfy our wants and where money is involved

• the exchange of goods and services

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Economic activity

• Economic activity is the work that people do to enhance their quality of life.

• Economic activities include thing that people do to get, refine or use natural resources

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Scope of Economics• Well defining the objectives of the firm• Demand analysis and forecasting• Production analysis• Cost analysis• Market structures• Pricing decisions

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• Profit analysis• Advertising• Investment analysis (capital Budgeting)

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Non-economic activity• Any activity undertaken to satisfy personal, social

and religious obligations

• Non-economic activities means where money is not involved.

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Micro and Macro economics

• Microeconomics is the branch of economics that examines the behavior of individual decision-making units—that is, business firms and households

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Macro economics• branch of economics • that examines the behavior of

economic aggregates – like income, output, employment …• on a national scale.

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Positive and Normative economic analysis

• studies economic behavior • without making judgments • describes what exists and how it works.• only explains “what is”• Only statement of facts

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Normative economic analysis

• analyzes outcomes of economic behavior• evaluates them as good or bad• prescribes courses of action• concerns with “what ought to be”

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Example:• Analysis on causes of poverty – Positive economic analysis

• Effects of poverty , • Remedies for poverty– Normative economic analysis

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Quiz• Wealth definition is given by-• Ruskin• Prof. Marshall• A.C. Pigou• Adam Smith

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• Scarcity definition given by-

• Lionel Robbins• Prof. Marshall• A.C. Pigou• Adam Smith

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• Study of small units of the economy like particular firms, individual prices etc. is called ____________________

Micro economics

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• The economic analysis, which is concerned with “what ought to be” is called _______

–Normative economic analysis

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