Nature of Business Economics – Explain with Examples

Nature of Business Economics

Nature of Business Economics is explained, as the business economics bridges the gap between economic theories and practical application of economic logic and tools. It eliminates the difference between the proposition of these theories and the real economic conditions.

1. Business Economics is micro-economic:

​Business economics can be said as microeconomic in nature as it is based on the techniques of microeconomics. The decision making situations of single individual establishments are covered in business economics which includes the achievement of organisational goals and long term survival of the firm in the market. These decisions include:

  1. What determines the budgets of individual firms and households?
  2. What combination of goods and services will best fit the needs with the given budget?
  3. How much should be saved for the future?
  4. What determines how much should be produced or sell?
  5. How the firm will finance its business operations?
  6. How many workers will be hired on a full time or part-time basis?
  7. And decisions regarding expansion, downsizing and shut down.

2. Business Economics is normative :

Business economics is normative as it establishes rules which enable firms to attain their goals. It also provides valid decision rules so that the business environment and its behaviour can easily be understood.

3. Business Economics is a science:

As science establishes a relationship between cause and effect. Business economics also establishes a relationship between economic theories and decision sciences such as mathematics, statistics and econometrics to form suitable strategies so that overall example, supply is the positive function of the price which means that change in price is the cause but change in supply is the effect. It also adopts scientific methods to test the validity of the results. Thus, It is science its methodology.

4. Business Economics is an art :

Art is nothing but a practical application of knowledge. If we analyze business economics, we find that it has features of art. As its branches such as production, consumption and finance provide a solution to various economic problems. And also, it requires the practical application of rules and principles explained in Economic theories. Thus, it can be said as an art in its application.

5. Realistic in nature :

​Business economics is real science. It deals with all the matters of the organisation considering the real conditions existing in the business environment. It tries to solve real business problems which are faced by firms. Hence, it is pragmatic in nature.

6. Includes macro analysis :

​Macroeconomics deals with the external environment as well which includes inflation, employment and income levels, tax policies, business cycle and foreign trade etc which affects the smooth functioning of the firm. Thus, business economics incorporates these macroeconomic factors to deal with the uncertain changing environment. Following aspects of macroeconomics are covered under business economics:

  1. Determination of the level of economic activity.
  2. Production of goods and services in a nation.
  3. Determination of jobs available in the economy.
  4. Causes behind the business cycles.
  5. Determination of growth in standard of living.

7. Interdisciplinary in nature :

​Business economics integrates all other disciplines such as mathematics, statistics, accounting and marketing etc to solve the problems in different fields of business. Therefore, it is interdisciplinary in nature.

Thus, the nature of business economics is related to the study of each and every element of the business which includes micro as well as the macro aspect of the business environment.

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