In life, we wish for unlimited things but we are provided with very limited sources to attain those wishes. So, there should be a proper balance between these two. This is the main aspect where Business Economics is used. But keep in mind that It only deals with big entities e.g. firms, nation etc. Therefore, business economics is an applied branch of knowledge where the resources are allocated in such a way that the objectives or desired goals of the firm can be achieved.
Business economics can be said as the integration of Economic Theory and Business Practices for the purpose of decision making and planning for the management. It means decision making on the basis of the use of tools of Economic Theories like demand, supply, price, competition etc. and determination of policies as defined in the business practices.
In simple words, it serves as a ground for the whole decision-making process. It gives a solution to the problems faced by enterprises through economic analysis.
Identification of problems and finding the solution are the main aspects of decision making. Business managers can take sound decisions only if the Economic principles are followed. Business success highly depends upon the appropriate decision making by the managers which is not an easy task. Thus, business managers take decisions keeping in mind their past experience and uncertainty. In this uncertain world, no decision can be appropriate but the decisions can be most favourable. Thus, Economic decision making acts as art.
This art can only be developed by Economic principles. Thus it can be regarded as an extension of Applied Economics. It is concerned with the application of economic tools to solve business problems. It is a link which establishes a relationship between the economic theories and the practical aspect of the business. That is why It is also known as Managerial Economics.
It also gives information about the resources which affects productivity and efficiency. It helps in an examination of alternatives to select the best course of action. This action directly affects the output of the business enterprise.
In Business, allocation of resources is very important. There are always a number of alternatives available. The evaluation of alternatives on the basis of the given information and choosing the best course of action is what we call Decision Making.
It helps the managers in decisions relating to customers, competitors, suppliers and the internal parties. It enables the firm to the proper utilization of scarce resources available and also helps in achieving the predetermined goals in the most efficient and effective manner. It is of great help in the decisions related to
- Price analysis
- Production analysis
- Risk analysis
- Capital budgeting
- Determination of demand.
Study of business economics helps in the development of analytical skills which helps in rational configurations and solutions of problems as well. As Microeconomics is the study of decisions regarding the allocation of resources and prices of goods and services relating to individuals, firms in the market and Macroeconomics is the study of the economy as a whole which focuses on aggregate changes in the economy such as inflation, growth rate, unemployment and gross domestic product. Thus Business Economics applies microeconomics tools to deal with macroeconomic decisions.
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