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Title: Business Economics course by mgu.edu.in


1
COURSE CODE BCOM 13Course BUSINESS
Economics
  • Unit -1 Introduction to Business Economics

2
OBJECTIVES
  • Explain the concept of economics
  • Discuss the nature of economics
  • Elaborate on branches of economics
  • Explain the need of government intervention in an
    economy
  • Discuss the role of government in different
    economic systems

3
INTRODUCTION
  • Economics is a social science that studies the
    behavior patterns of human beings. The basic
    function of economics is to study how
    individuals, households, organizations, and
    nations utilize their limited resources to
    achieve maximum profit. The study of economics is
    divided into two parts, namely microeconomics and
    macroeconomics. Microeconomics is a branch of
    economics that examines the market behavior of
    individual consumers and organizations. It
    focuses on the demand and supply, pricing, and
    output of individual organizations. On the other
    hand, macroeconomics analyzes the economy as a
    whole. It deals with issues related to national
    income, employment pattern, inflation, recession,
    and economic growth. With the advent of
    globalization, there is a rapid increase in
    complexities in business decision making.
    Therefore, it is important for organizations to
    have a clear understanding of different economic
    concepts, theories, and tools.

4
MEANING OF ECONOMICS
  • Economics is defined by taking four viewpoints,
    which are explained as follows
  • Wealth Viewpoint Represents the classical
    perspective of economics. According to Adam
    Smith, economics is a science of wealth. He is
    regarded as the father of economics.
  • Welfare Viewpoint Represents a neo-classical
    standpoint of economics. Alfred Marshall, a
    neo-classical economist, associated the term
    economics with man and his welfare.
  • Scarcity Viewpoint Refers to the pre-Keynesian
    thought of economics. Lionel Robbins defined
    economics as a science of scarcity or choice.
  • Growth Viewpoint Indicates the modern
    perspective of economics. Paul Samuelson outlined
    three main aspects, namely human behavior,
    allocation of resources, and alternative uses of
    resources.

5
NATURE OF ECONOMICS
  • Economics as a Science Refers to the scientific
    nature of economics. Some economists believed
    that in economics, a problem is solved by
    adopting a scientific approach, which involves
    collecting and analyzing data and making related
    laws and theories.
  • Economics as a Social Science Implies that
    economics is a study of behavior patterns of
    human beings. The basic function of economics is
    to study how individuals, households,
    organizations, and nations utilize their limited
    resources to achieve maximum profit. Therefore,
    it can be said that economics is a social science

6
BRANCHES OF ECONOMICS
  • Microeconomics Refers to a branch of economics
    that examines the performance and behavior of
    individual organizations and consumers in an
    economy. It involves the study of supply and
    demand patterns and price and output
    determination of individual markets.
  • Macroeconomics Refers to a branch of economics
    that studies the performance and behavior of the
    whole economy. It undertakes the study of
    economic aggregates, such as changes in
    employment, national income, rate of growth,
    Gross Domestic Product (GDP), inflation, and
    price levels.

7
MAJOR ECONOMIC PROBLEMS
  • What to produce An organization faces problems
    related to the selection of a product to be
    produced in the present market conditions to get
    maximum profit.
  • How to produce An organization also faces
    problems related to the selection of techniques
    to be used for producing goods or services.
  • For whom to produce Refers to a problem related
    to the distribution of products and services
    among the different sectors of the economy.
  • Economical use of resources Refers to a problem
    of making optimum use of limited resources so
    that the wants of human beings can be satisfied.
  • Problem related to growth Refers to the problem
    related to the continuous development of the
    economy.

8
WORKING OF PRICE MECHANISM
  • According to economic theory, the market price of
    a product is determined at a point where the
    forces of supply and demand meet.
  • Demand and supply plays important role in
    economy, but, the government of every economy
    interferes in the economic system of the country.
  • Reasons for the failure of free market mechanism
  • Inequitable Distribution of Goods and Job
    Opportunities
  • Existence of Perfect Competition
  • Judgment of Individuals
  • Emphasis on Profit
  • Low Priority for Public Utilities
  • Growth of Monopolies

9
ROLE OF THE GOVERNMENT IN THE ECONOMY
  • The extent of role of government differs in
    different economies.
  • An economic system is a way through which
    economic resources are owned and distributed.
  • On the basis of the ownership and distribution of
    resources, the economic system can be classified
    into capitalist economy, socialist economy and
    mixed economy.

10
CAPITALIST ECONOMY
  • Refers to an economy that works on the principle
    of the free market mechanism.
  • In a capitalist economy, the main
    responsibilities performed by the government are
    as follows
  • Developing and sustaining the free market
    mechanism system
  • Eliminating any kind of restrictions on the
    working of free competitive market
  • Increasing the effectiveness of free competitive
    market system through various measures

11
SOCIALIST ECONOMY
  • On the other hand, in a socialist economy, the
    government plays a comprehensive role in almost
    all economic activities, such as production,
    distribution, and consumption, of a nation.
  • The private ownership of resources, in a
    socialist economy, is changed by state ownership.
  • In addition, in a socialist economy, the
    government plans and regulates all the economic
    activities centrally at a state level.
  • The objective of the government in a socialist
    economy is same as in the capitalist economy,
    such as growth, efficiency, and maintaining
    justice.

12
MIXED ECONOMY
  • Refers to an economy that comprises the features
    of both, the socialist economy and capitalist
    economy.
  • This implies that working of a mixed economy is
    based on the principles of the free market
    mechanism and centrally planned economic system.
  • In a mixed economy, the private sector is
    encouraged to work on the principle of the free
    market mechanism under a political and economic
    policy outline decided by the government.
  • On the other hand, the public sector, in a mixed
    economy, is involved in the growth and
    development of public utilities, which is based
    on the principle of socialist economy.

13
SUMMARY
  • Economics studies how individuals, households,
    organizations, and nations utilize their limited
    resources to achieve maximum profit.
  • Economics is divided into two parts, namely
    microeconomics and macroeconomics.
  • The need of government involvement in economic
    development was felt when the free market
    mechanism was failed to achieve major economic
    goals.
  • A capitalist economy refers to an economy that
    works on the principle of the free market
    mechanism.
  • In a socialist economy, the function of
    government is entirely different from the
    function of government in a capitalist economy.
  • Mixed economy refers to an economy that comprises
    the features of both, the socialist economy and
    capitalist economy.
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