Economics Analysis for

Business Decision
Presented By- Prof. Rajesh N Gade
Rajiv Gandhi Business School
Definition
Economics is a social science, which studies human
behavior in relation to optimizing allocation of
available resources to achieve the given ends.
Economics is a social science that studies how
individuals, governments, firms and nations make
choices on allocating scarce resources to satisfy their
unlimited wants. Economics can generally be broken
down into: macroeconomics, which concentrates on
the behavior of the aggregate economy; and
microeconomics, which focuses on individual
consumers.
Scope of Economics
1)Economic Activities
Production
Consumption
Investment
Exchange
2)Economic System
3)Economic Policies
4)Econometrics
5)Applied Economics

Branches of Economics
Micro Economics
Micro economics analyzes individualistic
behavior. It studies an individual consumer,
producer, price of a particular, household, etc.
Macro Economics
Macro economics is the study of aggregates or
averages covering the entire economy. such as
total employment, national income, national
output, total investment, total consumption, total
saving, aggregate supply, aggregate demand, and
general price level, wage level and cost structure.


Managerial Economics
Managerial economics generally refers to the
integration of economic theory with business
practice.
Economic Activities
Economic activities are those activities
which are concerned with the production,
consumption, exchange and investment of
resources used for satisfying human wants.
Basic economic Problem

Economic problem is the problem relating to
the necessity of choosing what,how,and for
whom to produce and how to achieve economic
growth
The basic economic problem is scarcity which
involves a lack of resources enough to satisfy
human needs and wants. These resources include
land, labour, capital and enterprise and cannot be
enough since our wants are very extensive and a
choice has to be made in the best way possible.
Every economic system faces basic economic
problems relating to production, distribution
and consumption in the society. The problem
of what to produce is more important in less
developed economy, as they do not have
skilled man power. How to produce is
another problem, as availability of resources is
different in each economy. Hence it is
important to adopt technology in production.


The problems depend on the economic status of
the country. Another problem is for whom to
produce; it depends on the socioeconomic
ideology. How much to produce is another
problem which depends on the Production,
Potential and Size of the market? The problem of
by whom to produce is also very big. A Socialist
Economy aims at social control over productive
activities; a Capitalist Economy gives occupational
freedom, the Mixed Economy is the combination
of both Capitalist and Socialist economy. The last
problem is that how best the resources are
being used. The available resources should be
allocated, to get maximum total output.

Circular Flow of Economic Activity
In economics, the terms circular flow of
income or circular flow refer to a simple economic
model which describes the reciprocal circulation of
income between producers and consumers In the
circular flow model, the inter-dependent entities of
producer and consumer are referred to as "firms" and
"households" respectively and provide each other
with factors in order to facilitate the flow of
income.Firms provide consumers with goods and
services in exchange for consumer expenditure and
"factors of production" from households.
The factors of production include land, labor, capital
and entrepreneurship. The prices that correspond to
these factors of production are rent, wages and profit.
People in households buy goods and services from
businesses in an attempt to satisfy their unlimited
needs and wants. Households also sell their labor,
land and capital in exchange for income that they use
to buy goods and services that firms
produce. Businesses sell goods and services to
households, earning revenue and generating profits.
Businesses also pay wages, interest and profits to
households in return for the use of their factors of
production. Governments levy taxes on households
and businesses in order to provide certain benefits to
everyone.