Course: BBA

Subject: Business Economics

Unit: 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.
Wants Efforts

satisfaction
1. Consumption: Extracting utility from goods
and services.
2. Production: Production of goods and
services which posses utility.
3. Exchange: means buying and selling of
goods and services. It is link between
consumer and producer.
4. Distribution: Sharing of income by the four
factors of production.
1. Wealth Definition. Adam Smith
2. Welfare Definition. Alfred Marshall
3. Scarcity Definition. Lionel Robbins
4. 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.
1. Mainly concerned with the study of man in
relation to wealth.
2. First place to man, second place to wealth.
3. It studies man not in isolation but a member
of a social group.
4. Definition considered only material welfare,
ignored immaterial welfare.
1. Restricted scope of economics considered only
material goods.
2. Robbins objected the word material and the idea
welfare. There are some goods which do not
promote human welfare. Ex. Liquors, cigarettes.
3. Welfare is subjective, it cannot be measured.
4. Economics is neutral between ends. No way
concerned what is good and what is bad.
5. 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.
1. Unlimited wants.
2. Scarce means.
3. Means have alternative uses.
1. Robbins included material and non material
goods ,widens the scope of economics.
2. He made economics a positive science.
3. 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.
1. Scarcity : Unlimited wants ,scarcity of resources
and alternative uses.
2. Dynamism: The importance of time is brought in
the definition.
3. Economic growth: His definition gave importance
to economic growth
4. Wide scope: Economic choice exist not only in a
monetary economy but also in a barter economy.
5. 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.
1. This method deduces conclusions from the truths
established by other methods.
2. It involves the process of reasoning from certain
laws or principles which are assumed to be true,
to analysis of facts.
3. Deduction as a descending process in which we
proceed from a general to principle to particular.
4. It as a priori method and also called it abstract
and analytical method
5. Ricardo regarded as the first economist who
applied this method.
6. Ex; the law of diminishing returns.
1. It is intellectual method, near to reality.
2. This method is simple.
3. The use of mathematics brings exactness.
4. Universal validity.
1. This method based on assumptions.
2. Inadequate data.
3. 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.
1. This method proceeds from particular to
general, it is thus realistic.
2. Helps in future enquiries.
3. Statistical method.
4. Dynamic.
1. Statistical numbers can be misused and
misinterpreted.
2. Probable.
3. Time consuming and costly method.
4. 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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