Nature & Scope of Business Economics

  • By Team Koncept
  • 26 March, 2024
Nature & Scope of Business Economics

Nature & Scope of Business Economics

Table of content :

  1. Introduction of Nature & Scope of Business Economics - CA Foundation ( Business Economics )
  5. Conclusion of Nature & Scope of Business Economics - CA Foundation ( Business Economics )


Introduction of Nature & Scope of Business Economics - CA Foundation ( Business Economics )

Business Economics, also referred to as Managerial Economics, generally refers to the integration of economic theory with business practice. While the theories of Economics provide the tools which explain various concepts such as demand, supply, costs, price, competition etc., Business Economics applies these tools in the process of business decision making. Thus, Business Economics comprises of that part of economic knowledge, logic, theories and analytical tools that are used for rational business decision making. In brief, it is Applied Economics that fills the gap between economic theory and business practice.

Business Economics has close connection with Economic theory (Micro as well as Macro￾Economics), Operations Research, Statistics, Mathematics and the Theory of Decision-Making. A professional business economist has to integrate the concept and methods from all these disciplines in order to understand and analyse practical managerial problems. Business Economics is not only valuable to business decision makers, but also useful for managers of ‘not-for-profit’ organisations such as NGO, and voluntary organisations.


Economics has been broadly divided into two major parts i.e. Micro Economics and Macro Economics. Before explaining the nature of Business Economics, it is pertinent to understand the distinction between these two.

Micro Economics is basically the study of the behaviour of different individuals and organizations within an economic system. In other words, Microeconomics examines how the individual units (consumers or firms) make decisions as to how to efficiently allocate their scarce resources. Here, the focus is on a small number of or group of units rather than all the units combined, and therefore, it does not explain what is happening in the wider economic environment.

We mainly study the following in Micro-Economics:
 Product pricing;
 Consumer behaviour; 
 Factor pricing;
 The economic conditions of a section of people;
 Behaviour of firms; and
 Location of industry.


Macro Economics, in contrast, is the study of the overall economic phenomena or the economy as a whole, rather than its individual parts. Accordingly, in Macro-Economics, we study the behaviour of the large economic aggregates, such as, the overall levels of output and employment, total consumption, total saving and total investment, exports, imports and foreign investment and also how these aggregates shift over time. It analyzes the overall economic environment in which the firms, governments and households operate and make decisions. However, it should be kept in mind that this economic environment represents the overall effect of the innumerable decisions made by millions of different consumers and producers.

A few areas that come under Macro Economics are:
 National Income and National Output; 
 The general price level and interest rates; 
 Balance of trade and balance of payments;
 External value of currency;
 The overall level of savings and investment; and
 The level of employment and rate of economic growth.

Nature of Business Economics 

The economic world is extremely complex as there is a lot of interdependence among the decisions and activities of economic entities. Economic theories are hypothetical and simplistic in character as they are based on economic models built on simplifying assumptions. Therefore, usually, there is a gap between the propositions of economic theory and happenings in the real economic world in which the managers make decisions. Business Economics enables application of economic logic and analytical tools to bridge the gap between theory and practice.

The following points will describe the nature of Business Economics:

  1. Business Economics is a Science: Science is a systematized body of knowledge which establishes cause and effect relationships. Business Economics integrates the tools of decision sciences such as Mathematics, Statistics and Econometrics with Economic Theory to arrive at appropriate strategies for achieving the goals of the business enterprises. It follows scientific methods and empirically tests the validity of the results.
  2. Based on Micro Economics: Business Economics is based largely on Micro-Economics. A business manager is usually concerned about achievement of the predetermined objectives of his organisation so as to ensure the long-term survival and profitable functioning of the organization. Since Business Economics is concerned more with the decision making problems of individual establishments, it relies heavily on the techniques of Microeconomics.
  3. Business Economics is also an Art as it involves practical application of rules and principles for the attainment of set objectives. 
  4. Use of Theory of Markets and Private Enterprises: Business Economics largely uses the theory of markets and private enterprise. It uses the theory of the firm and resource allocation in the backdrop of a private enterprise economy.
  5. Pragmatic in Approach: Micro-Economics is abstract and purely theoretical and analyses economic phenomena under unrealistic assumptions. In contrast, Business Economics is pragmatic in its approach as it tackles practical problems which the firms face in the real world. 
  6. Interdisciplinary in Nature: Business Economics is interdisciplinary in nature as it incorporates tools from other disciplines such as Mathematics, Operations Research, 
  7. Normative in Nature: Economic theory has developed along two lines – positive and normative. A positive or pure science analyses cause and effect relationship between variables in an objective and scientific manner, but it does not involve any value judgement. In other words, it states ‘what is’ of the state of affairs and not what ‘ought to be’. In other words, it is descriptive in nature in the sense that it describes the economic behaviour of individuals or society without prescriptions about the desirability or otherwise of such behaviour. As against this, a normative science involves value judgements. It is prescriptive in nature and suggests ‘what should be’ a particular course of action under given circumstances. Welfare considerations are embedded in normative science.


Operational issues include all those issues that arise within the organization and fall within the purview and control of the management. These issues are internal in nature. Issues related to choice of business and its size, product decisions, technology and factor combinations, pricing and sales promotion, financing and management of investments and inventory are a few examples of operational issues. The following Microeconomic theories deal with most of these issues.

Microeconomics applied to Internal or Operational Issues

  1. Demand Analysis and Forecasting
  2. Production and Cost Analysis
  3. Inventory Management
  4. Market Structure and Pricing Policies
  5. Resource Allocation
  6. Theory of Capital and Investment Decisions
  7. Profit Analysis
  8. Risk and Uncertainty Analysis


Macroeconomics applied to External or Environmental Issues

  1. The type of economic system 
  2. Stage of business cycle 
  3. The general trends in national income, employment, prices, saving and investment.
  4. Government’s economic policies like industrial policy, competition policy, and fiscal policy, foreign trade policy and globalization policies. 
  5. Working of central banks and financial sector and capital market and their regulation. 
  6. Socio-economic organisations like trade unions, producer and consumer unions and cooperatives. 
  7. Social and political environment.


Conclusion of Nature & Scope of Business Economics - CA Foundation ( Business Economics )

Economics is a discipline rooted in the fundamental reality of unlimited human wants against limited resources. Divided into micro and macroeconomics, it analyzes how individuals and businesses allocate scarce resources efficiently and examines the behavior of large economic aggregates over time. Business Economics, integrating economic theory with practical business applications, relies on both micro and macroeconomic analyses. It addresses operational issues like demand forecasting, production costs, and market structure, as well as environmental factors such as economic systems, government policies, and financial market operations. As a normative and interdisciplinary science, Business Economics offers insights into decision-making processes, resource allocation, and risk assessment, bridging theory and practice in the business world.

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