As we all aware that business economics is the application of economic theory and methodology to business. Business economics is a field where it uses economic theory & quantitative methods to analyze business enterprises. Business involves decision making. Decision making means the process of selecting one out of two or more alternative courses of action. Business Economics is concern with economic issues & problems related to business organization, business management, and business strategy.
“What is happening” rather than “What will happen” is the key of Business Economics.
Business Economics means:-
1. “The addition of economic theory with business practice for the purpose of facilitating decision-making and future planning with the help of management.”
2. “Business Economics is the science, arts, and commerce which directs how scare resources to manage cost (price) effectively and to maximize profit of the business”.
The Scope of business economics is so wide that it holds almost all the problems & areas of the manager & company. It deals with demand analysis & forecasting, resource allocation, production function, cost analysis, inventory management, advertisement, price system, capital budgeting, etc.
Scope of business economics is discussed as under:
- Demand analysis & forecasting: Demand forecasting is the process of finding the values for demand in future time period. A company is an economic organization which transform productive resources into goods to be sold in the market. Demands analysis helps to identify the various factors influencing the product demand and thus provides guidelines for manipulating the demand.
Demand analysis and forecasting provide the essential basis for business planning and occupies a strategic place in business economics.
- Cost analysis: A study of economic costs, combined with the data drawn from the companies accounting records, can yield significant cost estimates which are useful for management decisions. An element of cost uncertainty exists because all the factors determining costs are not known and controllable.
- Inventory management:-It refers to stock of raw materials which a company keeps. If the level of inventory is low, production will be hampered at the same time if the level of inventory is high then it will amounts to blockage of funds.
- Advertisement:-Business economics helps in determining the total advertisement cost & budget, the measuring of economic effects of advertisement & form a fundamental part of decision making.
- Price system:-Pricing is an important area of business economic. In fact, price is the origin of a company’s revenue and as such its success largely depends on how correctly the pricing decisions are taken.
Lets discussed how Business Economist plays an Important Role to take Business decisions:-
The business economist is expected to play a positive & Constructive role in modern business set up. A business is essentially involved in the process of decision making as well as forward planning. Business decision is an integral part of management. Management and decision making are to be considered as inseparable. Business decision is the selection of a particular course of action, based on some criteria, from two or more possible alternatives.
Role of Business Economist:
- Identifying various business problems: Various companies face many problems such as labour problems, pricing problems, and other problems related to Government controls and restrictions. The basic job of business economist is to identify various problems that are uplifting a company, find out various reasons behind these problems, analyze their effects on the functioning of the company and finally suggest rational alternative and corrective measures to be taken by the management.
Also, it’s his duty to design various course of action to maintain & improve the existing systems.
- Providing a quantitative base for decision making & forward planning: The business economics with his vast experience has to provide a quantitative base for decision making, policy making & forward planning in a business. Business economist helps to study the in-depth knowledge of the various factors, controllable & non-controllable which influence the working of a business unit.
Business economist helps in planning, production & marketing planning, employing the latest organizational model & develop management techniques to maximize output & minimize operating cost of the firm.
- Advisory to the company: The business economist advises the businessman on all economic and non-economic matters. By virtue of business economist experience it helps to analyze various problems related with volume of investment, sales promotion, competitive conditions, financial positions, labour relation, and Government policies so that he it will help to secured the business while doing every activity.
Business economist must be in touch with fast changing technological development and suggest the most suitable information technology to be adopted by the company.
- Knowledge about the environment factors which affects the business: In order to make the business more viable and profitable the business economist should have a detailed knowledge and information about the environment of a company. Broadly speaking the environmental factors are divided in two parts:
1. Business Environment (External Factors)
2. Business Operations (Internal Factors)
Business Environment helps to study the all factors and forces and beyond the control of individual business enterprises and its management which will help to maintained the business as stable. Business operation helps to study those factors and forces, which operate, well within the company and influence its operations which can minimize the cost of the business.
Now, after discussing above aspects every business organization needs to appoint a Business Economist who have all the knowledge and fundamentals of the economics to run a business smoothly.
