Business Economics

MODULE: I

The word Economics is derived from the Greek

words OKIOS NEMEIN meaning household
management .
Man is bundle of desires. Goods and services
satisfy these wants. But almost all the goods are
scarce. To produce goods land, labour, capital
and organization are needed. Economic
problem arises because of scarcity.
Economics is a study of economic problems.
Wants are motive force for economic activity.
Wants leads to efforts. Efforts secures
satisfaction.

Efforts

Wants

satisfaction

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2.
3.

4.

Consumption: Extracting utility from goods

and services.
Production: Production of goods and
services which posses utility.
Exchange: means buying and selling of
goods and services. It is link between
consumer and producer.
Distribution: Sharing of income by the four
factors of production.

1.
2.
3.
4.

Wealth Definition. Adam Smith

Welfare Definition. Alfred Marshall
Scarcity Definition. Lionel Robbins
Growth Definition. Paul Samuelson

Father of Economics Adam Smith in his

book Wealth of Nations 1776 defined
economics is the study of wealth.
J.B Say, J.S Mill, Walker, B.Price all agreed
that Economics is concerned with wealth.
In this definition wealth is given first place,
man has given second place

Walras in his book Elements of pure

economics wealth definition is
unscientific one.
Carlyle. Ruskin, Dickens criticized it as
dismal science.
Carlyle It was a Gospel of mammon and
pig science.
Economics criticized as bread and butter
science.
Economics is science of ills and not
wealth.

Alfred Marshall in his book Principles of

Economic Science-1890 defined
Economics is the study of man kind in the
ordinary business of life.
Economics is one side a study of wealth;
and on the other side more important side
a part of study of man
He made economics is a science of human
welfare.

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2.
3.
4.

Mainly concerned with the study of man in

relation to wealth.
First place to man, second place to wealth.
It studies man not in isolation but a
member of a social group.
Definition considered only material
welfare, ignored immaterial welfare.

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2.

3.
4.
5.

Restricted scope of economics considered only

material goods.
Robbins objected the word material and the
idea welfare. There are some goods which do
not promote human welfare. Ex. Liquors,
cigarettes.
Welfare is subjective, it cannot be measured.
Economics is neutral between ends. No way
concerned what is good and what is bad.
Economics is not a social science. Robbins
regards as a human science.

 Lionel

Robbins in his book Nature

and Significance of Economic
Science-1932 given scarcity
definition.

Economic

is the science which

studies human behavior as a
relationship between ends and
scarce means which have alternative
uses.

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2.
3.

Unlimited wants.
Scarce means.
Means have alternative uses.

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2.
3.

Robbins included material and non

material goods ,widens the scope of
economics.
He made economics a positive science.
His definition is universal.

Economics Noble prize winner (1970) Paul

Samuelson proposes a dynamic definition in his
book Economics(1948)
Economics is the study of how people and
society end up choosing with or without money to
employ scarce productive resources that could
have alternative uses to produce various
commodities and distribute them for
consumption, now or in the future among various
persons and groups in society. Economic analysis
the cost and benefits of improving patterns of
resources use.

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2.
3.
4.

5.

Scarcity : Unlimited wants ,scarcity of resources

and alternative uses.
Dynamism: The importance of time is brought in
the definition.
Economic growth: His definition gave
importance to economic growth
Wide scope: Economic choice exist not only in a
monetary economy but also in a barter
economy.
Problem of choice: Definition explains problem
of choice in present and future in dynamic
conditions.

Economics

noble prize winner (1969), Ragner

Frisch was the first to use the terms micro and
macro in economics in 1933.
The terms micro and macro derived from Greek.
Mikros (small) and makros (large).
Micro means individualistic and macro
aggregative.

Micro economics is the study of particular

firms, households, individual prices and
particular commodity.
Micro economics is based on the assumption
of full employment and ceteris paribus
(other things remain constant).
Micro economics was popularized by David
Ricardo, Marshall, J.B Say and J.S Mill.
Micro economics called as Price Theory.

Macro economics is the study of economic

system as a whole.
Macro economics studies aggregates values
like National Income, National output,
general price level, total consumption,
saving and investment of a country.
Macro economics is called Income and
Employment theory.
J.M Keynes popularized macro Economics
Where micro economics explain a tree in
the forest, macro economics explains all the
trees in the forest.

The French sociology philosopher Augustine

Compte used the terms static and dynamic
first time in social science.
J.S Mill was the first to use these terms in
economics.
Clear and scientific distinction between the
two terms made by Ragner Frisch in 1928.

The word static derived from the Greek

statike. which means bringing to a stand still.
It means a state of rest or no movement.
According to Clark, where five kinds of changes
are conspicuous by their absence. The size of
population, the supply of capital, methods of
production, forms of business organization and
wants of people.
Static economy thus a time less economy
where no changes occur.
Static is like a snapshot from a still.

Dynamic is the study of change .

Economic dynamics is concerned with

time lags, rates of change,

Economic dynamics is the running picture

of the working of the economy.

To study economics, two methods are

there.1.Deductive method, 2. Inductive method.
Deduction proceeds from general to particular
while induction proceeds from particular to
general.

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2.

3.

4.
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This method deduces conclusions from the truths

established by other methods.
It involves the process of reasoning from certain
laws or principles which are assumed to be true,
to analysis of facts.
Deduction as a descending process in which
we proceed from a general to principle to
particular.
It as a priori method and also called it abstract
and analytical method
Ricardo regarded as the first economist who
applied this method.
Ex; the law of diminishing returns.

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4.

It is intellectual method, near to reality.

This method is simple.
The use of mathematics brings exactness.
Universal validity.

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2.
3.

This method based on assumptions.

Inadequate data.
Lerner criticised this method is simply
armchair analysis.

This method involves the process of reasoning

from particular to general.
It as an ascending process.
This method involves four stages:
1.observation; 2. formation of hypothesis
3.generalisation; 4. verification.
This method was introduced by German
historical school Roscher, Hillbrand, and Fedric
List.

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2.
3.
4.

This method proceeds from particular to

general, it is thus realistic.
Helps in future enquiries.
Statistical method.
Dynamic.

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2.
3.
4.

Statistical numbers can be misused and

misinterpreted.
Probable.
Time consuming and costly method.
Differ from investigator to investigator for
the same problem.

Economics is the social science that studies the production, distribution,

and consumption of goods and services. Economics aims to explain how
economies work and how economic agents interact. Economic analysis is
applied throughout society, in business and finance but also in crime,
education, the family, health, law, politics, religion, social institutions, and
war. Economic textbooks distinguish between microeconomics ("small"
economics), which examines the economic behavior of agents (including
individuals and firms) and "macroeconomics" ("big" economics),
addressing issues of unemployment, inflation, monetary and fiscal policy.
Business economics (also called managerial economics), is a branch of
economics that applies microeconomic analysis to specific business
decisions. As such, it bridges economic theory and economics in practice.
It draws heavily from quantitative techniques such as regression analysis
and correlation, Lagrangian calculus (linear). If there is a unifying theme
that runs through most of business economics it is the attempt to optimize
business decisions given the firm's objectives and given constraints
imposed by scarcity, for example through the use of operations research
and programming

Source:
Manquee book managerial economics.
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