Business Economics course by mgu.edu.in

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COURSE CODE BCOM 13Course BUSINESS
Economics

• Unit -1 Introduction to Business Economics

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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

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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.

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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.

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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

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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.

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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.

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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

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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.

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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

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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.

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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.

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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.