TRINITY INSTITUTE OF PROFESSIONAL STUDIES

Sector – 9, Dwarka Institutional Area, New Delhi-75Affiliated Institution of G.G.S.IP.U, Delhi

BBA(G)BUSINESS ECONOMICS – I

17103

BYREENA YADAV

TRINITY INSTITUTE OF PROFESSIONAL STUDIESSector – 9, Dwarka Institutional Area, New Delhi-75

Business Economics- An Introduction

• Business economics is considered to be the applied microeconomics i.e., it is concerned with the application of microeconomic principles to decision making by firm.

• According to Brigham and Pappas “Business economics is the application of economic theory and methodology to business administration and practice.”

TRINITY INSTITUTE OF PROFESSIONAL STUDIESSector – 9, Dwarka Institutional Area, New Delhi-75

Common features of Business Economics

• It is concerned with economic decision making- this implies that it deals with identification of economic choices and allocation of scarce resources.

• It is goal oriented and prescriptive – it deals with how decisions should be made by business economists to achieve organisational goals.

TRINITY INSTITUTE OF PROFESSIONAL STUDIESSector – 9, Dwarka Institutional Area, New Delhi-75

Common features of Business Economics

• It is pragmatic – it deals with those analytical tools which help in improving decisions.

• It provides a link between microeconomics and decision making – using economic theory, in many ways, analogous to using a road map.

a roadmap abstracts away from non-essential characteristics and concentrates on what is relevant for the task at hand.

TRINITY INSTITUTE OF PROFESSIONAL STUDIESSector – 9, Dwarka Institutional Area, New Delhi-75

Nature of business economics

• It is micro-economics in nature where the unit of study is a firm.

• It is concerned with normative micro-economics and not with positive micro economics.

• It takes help of macro-economics to analyse the external conditions which are relevant to the business.

TRINITY INSTITUTE OF PROFESSIONAL STUDIESSector – 9, Dwarka Institutional Area, New Delhi-75

Nature of business economics• It concentrates on making economic theory more

application oriented. While economic theory tries to solve the complicated theoretical issues, business economics tries to introduce complications which the economists ignore by assuming them to be constant.

• It is both conceptual and metrical. An intelligent application of quantitative techniques to business presupposes careful judgement and thinking about the nature of the particular problem to be solves. Business economics provides the necessary conceptual tools to achieve this.

TRINITY INSTITUTE OF PROFESSIONAL STUDIESSector – 9, Dwarka Institutional Area, New Delhi-75

Nature of business economics

• It helps in making rational choices. Business economics continues to face the problem of scarcities and, consequently, must continue to make choices. Business economics is goal-oriented and aims at achieving maximum objectives.

TRINITY INSTITUTE OF PROFESSIONAL STUDIESSector – 9, Dwarka Institutional Area, New Delhi-75

Application of business economics

TRINITY INSTITUTE OF PROFESSIONAL STUDIESSector – 9, Dwarka Institutional Area, New Delhi-75

Opportunity cost

• Opportunity cost is the cost of alternative opportunity given.

• When a choice is made in favour of a particular alternative that appears to be most desirable of all the given alternatives, then the next best alternative has been given up. The benefit of the next best alternative which has been sacrificed due to choice of the best alternative is known as the opportunity cost of the best alternative.

TRINITY INSTITUTE OF PROFESSIONAL STUDIESSector – 9, Dwarka Institutional Area, New Delhi-75

Opportunity cost

• For example – an engineer having two offer letters of job. Job A gives Rs20000/month whereas, job B gives Rs18000/month. The engineer chooses job A and this very moment job B becomes its opportunity cost.

TRINITY INSTITUTE OF PROFESSIONAL STUDIESSector – 9, Dwarka Institutional Area, New Delhi-75

Time value of money

• The basic valuation of investment models are based on the concept that ‘money has a time value’ i.e., Rs100 received today has higher value than Rs100 received after 5 years.

• The following are reasons behind it –1. Compensation for uncertainty.2. Preference for present consumption.3. The re-investment opportunity.