F.Y.B.com sem 1 business economics scope and importance questions and answers



F.Y.B.com sem 1 business economics scope Quesion bank

Q.1 Discuss scope and importance of business economics.



Business Economics is also called as Managerial Economics. It involves application of economic theory and practice to business. In business, decision making is very important. Decision making is a process of selecting one course of action out of available alternatives. Thus business economics serves as a link between economic theory and decision-making in the context of business. Following are few definitions of Business Economics.

Spencer and Siegelman:

It is “the integration of economic theory with business practice for the purpose of facilitating decision making and forward planning by management.”

Henry and Hayne:

“Business Economics is economics applied in decision making. It is a special branch of economics. That bridges the gap between abstract theory and managerial practice.”


“Business Economics refers to the application of economic theory and the tools of analysis of decision science to examine how an organisation can achieve its objectives most effectively.”


Scope is nothing but the subject matter of business economics. Scope of Business Economics is very wide.

1) Market Demand and Supply

In economics both demand and supply are the important forces through which market economy functions. Individual demand for a product is based on an individual’s choice / Preferences among different products, price of the product, income etc. Individual demand is nothing but desire backed by individual’s ability and willingness to pay. By summing up the demand of all the consumers or individuals for the product we get market demand for that particular product. Individual Supply is the amount of a product that producer is willing to sell at given prices. By summing up the supply of all the producers for the product we get market supply for that particular product. The market price where the quantity of goods supplied is equal to the quantity of goods demanded is called as equilibrium price. Existence, growth and future of business or firm depends on what price market determines for its product.

2) Production and Cost Analysis

Knowledge of business economics helps manager to do production and cost analysis. Production analysis helps to understand process of production and to make optimum utilisation of available resources. Cost analysis on the other hand helps firm to identify various costs and plan budget accordingly. Both production and cost analysis will help firm to maximize profit.

3) Market structure and Pricing Techniques

Markets are very important in business economics. Study of markets such as perfect completion, monopoly, oligopoly, monopolistic market etc. is very significant for producers. It is very imperative for manager or producer to identify type of market that will be there for their products. Knowledge of markets and competition will help them to take better decision regarding pricing of the product, marketing strategies etc. Pricing techniques, on the other hand, helps the firms to decide best remunerative price at different kinds of markets.

4) Forecasting and coverage of risk and uncertainty

Knowledge of business economics helps manager to forecast future. For example, Demand forecasting. It means estimation of demand for the product for a future period. Demand forecasting enables an organization to take various decisions in business, such as planning about production process, purchasing of raw materials, managing funds in the business, and determining the price of the commodity. Likewise forecasting future helps firm to take important decisions and cover risk and uncertainty associated with those decisions.


5) Inventory Management

Knowledge of business economics will help producer to reduce costs associated with maintenance of inventory such as raw materials, finished goods etc.

6) Allocation of resources

Business Economics provides advanced tools such as linear programming which helps to achieve optimal utilisation of available resources.

7) Capital Budgeting

Capital budgeting or investment appraisal is an official procedure used by firms for assessing and evaluating possible expenses or investments. It is a process of planning of expenditure which involves current expenditure on fixed/durable assets in return for estimated flow of benefits in the long run. Investment appraisal is the procedure which involves planning for determining whether firm’s long-term investments such as heavy machinery, new plant, research and development projects are worth the funding or not. Knowledge of business economics helps producer to take appropriate investment decisions with the help of capital budgeting.


1. Knowledge of business economics helps business organization to take important decisions as it deals with application of economics in real life situation.

2. It helps manager or owner of firm to design policies suitable for their firm or business.

3. Business economics is useful in planning future course of action.

4. It helps to control cost and monitor profit by doing cost benefit analysis.

5. It helps in forecasting future for taking important decisions in present.

6. It helps to set appropriate prices for various products by using available pricing techniques.

7. It helps to analyse effects of various government policies on business and take appropriate decision.

8. It helps to degree of efficiency of firms by using various economic tools.

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