Very Short Questions Answers
Define business economics.
Business economics is defined as the branch of economics which deals with application of economic principles and methods for business and managerial decision making of firms.
Write any five characteristics of business economics.
The features of business economics are as follows:
i. Business economics is micro economics.
ii. Business economics is normative economics
iii.Business economics is pragmatic
iv. Business economics uses theory of firm.
v. The main aim of business economics is to help management.
State the scope of business economics
- he scope of business of economics is as follows:
i. Theory of demand
ii. Theory of production
iii. Theory of exchange or price theory
iv. Theory of profit
v. Theory of capital and investment
Define micro economics in one sentence.
Microeconomics is defined as the branch of economics which studies small individual parts of an economy. In individual such as households, firms, industry, etc.
What are the major or principal variables of micro economics?
The major or principal variables of microeconomics are relative prices, individual demand and supply, output of individual firms and so on.
Why microeconomics is called slicing method?
Microeconomics is called slicing method because it splits up the entire economy into smaller parts for the purpose of intensive study.
Short Questions Answers
Define business economics. Explain its scope. OR, What is managerial economics? Explain its scope.
Definition of Business Economics/ Managerial Economics
Business economics is the branch of economics which deals with the application of economic principles and methods for business and managerial decisions of firms. According to Joel Dean, “The purpose of managerial economics is to show how economic analysis can be used in formulating business policies.” The word business economics and managerial economics are synonyms. Therefore, these words are often used interchangeably.
Scope of Business Economics/ Managerial Economics
The scope of business economics includes following topics:
i. Demand analysis and forecasting: Demand analysis is very useful to the factors determining demand for a product. It provides guidelines to create demand. Similarly, a major part of business decision- making depends on accurate estimates of demand. It means that a forecast of future is essential before making production decision. Thus, demand analysis forecasting are essential for business planning.
ii.Cost and production analysis: The theory of production and cost analysis are also very important for the functioning of production process planning. To earn a certain level of profit, a certain level of goods has to be produced and to obtain such production; some costs have to be incurred. In this context, business economics deals with determining optimum level of output and minimum level of average cost of production.
iii. Pricing decisions and method: Pricing decisions is an important area of business economics. The success of business firms depends upon their pricing decision. If the pricing decision is appropriate, products of the firm can get market and can earn profit. On the other hand, if the pricing decision of the firm is not appropriate, products of the firm will not get market and thus, firm will have to bear loss. Pricing decisions and methods include determination of price under different market conditions, pricing policies, price forecasting etc.
iv. Profit management: The main objective of the business firms is to make maximum profit. But profit is always uncertain because of fluctuation in price, change in price of factors of production, change in nature of competition, change in technology etc. Therefore, profit planning and profit management are necessary for improving profit earning efficiency of the firm. The important aspects under these topics are theories of profit, profit policies and techniques of profit planning.
v. Capital and investment management: Capital is the foundation of a business. Like other factors of production, it is also a source and expensive factor of production. Therefore, it should be allocated most efficiently. The theory of capital and investment explains the important issues like selection of suitable investment project, efficient allocation of capital, assessing efficiency of capital etc.
vi. Objectives of the firm: Every firm has an objective. The objective of the firm may be many ranging from profit maximization to sales maximization. However, a firm may have one objective at a time. The theories regarding the objective of the firm are studied under business economics.
vii. Business environment: Business economics studies the business environment. The phases of business cycle, situation of money and capital market, market structure, purchasing power of people etc. are studied under business environment.
What is microeconomics? Explain its scope.
Microeconomics is defined as the branch of economics which deals with small individual parts of an economy. In other words, microeconomics is concerned with the study of individual units of an economy. Microeconomics assumes the existence of full employment in the economy and analyses how resources are allocated among alternative uses. The principal variables of microeconomics are relative prices, individual demand and supply, output of individual firms etc.
Scope of microeconomics means the subject matter or area of study under microeconomics. The scope of microeconomics can be explained as follows:
i. Theory of demand: Goods and services are produced due to the consumer’s demand. Theory of demand refers to analysis of consumers’ demand for a commodity and his or her maximum satisfaction. It includes meaning, types, law and determinants of demand, elasticity demand, law of diminishing marginal utility, law of maximum satisfaction, indifference curve and so on.
ii. Theory of production and cost: One of the most important branches of microeconomics is theory of production and cost. Under the theory of production, we study production function, various theories of production like law of variable proportion, laws of returns to scale, and producer’s equilibrium. Similarly, under the theory of cost, we study various concepts of cost and nature of short run and long run cost curves.
iii. Theory of product pricing: Microeconomics also deals with theory of product pricing. Under the theory of product pricing, we study determination of price of goods and services under various market conditions like perfect competition, monopoly, monopolistic competition, oligopoly etc. Therefore microeconomics is also known as the price theory.
iv. Theory of factor pricing: Theory of factor pricing deals with determination of reward of factors of production. There are four factors of production: land, labour, capital and organization. These factors of production get reward in the form of rent, wages, interest and profit respectively. There are different traditional and modern theories of factors pricing, which are studied under microeconomics.
v.Theory of economics welfare: Microeconomics also deals with welfare economics. The subject matter of welfare economics includes efficiency in consumption, production and distribution. It deals with the condition of economic efficiency and suggests measures to avoid inefficiency. This helps to improve the economic condition of people.
Explain the Principles of Economics.
Principles of Economics are as follows:
i. People face trade-offs: To get one thing, we have to give up something else. This is known as the trade-off. This is the most fundamental part of economics. For example, if we work, we don’t get leisure time. Another example of trade-off is the conflict between efficiency and equality. Efficiency can be chosen at the cost of equality and equality can be chosen at the cost of efficiency.
ii. The cost of something is what you give up to get it: Making a decision requires comparing the cost and benefits of alternative courses of action. The cost of one option is whatever best next alternative we give up. This is known as the opportunity cost. For example, the opportunity cost of college students is earnings from jobs given up to attend college.
iii. Rational people think at the margin: In economics, people are assumed to be rational. Rational people are those who systematically and purposefully do the best they can to achieve their objectives. Rational people make better decisions by thinking at the margin. It means that rational people or firms make decisions on the basis of marginal changes in costs and benefits.
iv. People respond to incentives: An incentive is something that induces a person to act, such as the prospect of a punishment or a reward. Because rational people make decisions by comparing costs and benefits, they respond to incentives. The marginal changes in costs and benefits motivate people to respond. For example, when the price of apples rises, its production and supply will increase because profit will increase. Here, profit is an incentive to increase the production of apples.
v. Trade can make everyone better off: The high living standard of people in the present world is due to trade. People gain from trade because it allows people to specialize in what they do best and enjoy a greater variety of goods and services. For example, we are enjoying a variety of goods like cars produced in Japan, computers produced in the USA and mobile phones produced in Korea and China. If there was no foreign trade in Nepal, we would not get these goods.
vi. Markets are usually a good way to organize economic activity: In the market economy, markets allocate resources efficiently by the decision of millions of firms and households. The market economies have proven remarkably successful in organizing economic activities to promote overall economic well being than the centrally planned or socialist economies of the world.
vii. Governments can sometimes improve market outcomes: When the market fails to allocate resources efficiently, this is known as the market failure: In this situation, the government improves market outcomes through its policy interventions like taxes, subsidies, patent laws, rules and regulations, etc.
Define microeconomics. Explain its scope and limitations.
Microeconomics is defined as the branch of economics which deals with small individual parts of an economy. In other words, microeconomics is concerned with the study of individual units of an economy. Microeconomics assumes the existence of full employment in the economy and analyses how resources are allocated among alternative uses. The principal variables of microeconomics are relative prices, individual demand and supply, output of individual firms etc.
The limitations of microeconomics are as follows:
i. Static: In the study of microeconomics, static analysis is used. In its analysis only one variable is assumed to be variable and other all variable are assumed to be constant or unchanged. In the real life, all variables are, changing unrealistic
ii. Assumptions: Microeconomics is based on the assumptions of full employment and perfect completion in the economy. But in the real world, both these conditions are not found. Therefore, the assumptions of microeconomics are wrong or unrealistic.
iii. Wrong conclusion: Most of the conclusions drawn from the study of microeconomics are wrong. The conclusions derived from microeconomics may not be applicable to whole economy. For example, saving of an individual is good for him but if all individual of the country begin to save, it will be harmful to the economy.
iv. Limited scope: Microeconomics has limited scope. It does not study the many problems like poverty, unemployment, inflations, etc.
v. Applicable only in free market economies: Microeconomics is based on the assumptions of no government intervention or leissez fair economy. Microeconomic theories are applicable only in the free market economic system. It is not applicable in the socialistic economic system.
Explain the use or importance of microeconomic in business decision making. Or, What is microeconomics? Explain its uses in business decision-making.
Microeconomics is defined as the branch of economics which deals with small individual parts of an economy. In other words, microeconomics is concerned with the study of individual units of an economy. Microeconomics assumes the existence of full employment in the economy and analyses how resources are allocated among alternative uses. The principal variables of microeconomics are relative prices, individual demand and supply, output of individual firms etc.
Importance/Uses/Role of Microeconomics in Business Decision Making
Microeconomics principles are very useful in business decision making. It helps business firms in making investment and production on decision. It is also very useful to take decisions about price. The role or importance or uses of microeconomics regarding business decision making can be explained as follows:
i. Demand analysis and forecasting: Microeconomics is very helpful to forecast future demand for a product. Demand for a product depends on many. factors like price of the product, price of related goods, income of the consumer, taste and fashion of the consumer, age composition and size of the population etc. On the basis of these determinants of demand, business firms forecast future demand and present sales of the product.
ii. Cost analysis: Microeconomics analyses different types of cost, factors determining cost of production and different methods of minimizing cost of production. On the basis of these analysis, business firms can estimate cost of production before making production decision.
iii. Pricing policy: One of the important functions of firm is to determine price of the product. The determination of price of product depends upon the many factors like demand, supply, nature of market, nature of competition, price of substitute goods, price of complementary goods etc. Price affects profit, which determines existence and growth of the firm. Microeconomic analysis provides knowledge of theories production and pricing in order to make sure that the firms get profit continuously.
iv. Optimal resources utilizations: The productive resources are scares in the economy. Microeconomics deals with how productive resources are allocated efficiently in the production of goods and services. It also helps to decide: what to produce, how to produce and for whom to produce.
v. Optimal production decisions: Production decision is concerned with the methods and techniques of production. Business firms always face the problem of appropriate technique and method of production. It is because of limited resources, skill and knowledge. Microeconomics deals with different methods of production, which helps to find out the optimal production decision.
Long Questions Answer
Define microeconomics. Explain its importance and limitations
Microeconomics is defined as the branch of economics which deals with small individual parts of an economy. In other words, microeconomics is concerned with the study of individual units of an economy. Microeconomics assumes existence of full employment in the economy and analyses how resources are allocated among alternative uses. The principal variables of microeconomics are relative prices, individual demand and supply, output of individual firms etc.
Importance/Uses/Role of Microeconomics in Business Decision Making
Microeconomics principles are very useful in business decision making. It helps business firms in making investment and production on decision. It is also very useful to take decisions about price. The role or importance or uses of microeconomics regarding business decision making can be explained as follows:
i. Demand analysis and forecasting: Microeconomics is very helpful to forecast future demand for a product. Demand for a product depends on many. factors like price of the product, price of related goods, income of the consumer, taste and fashion of the consumer, age composition and size of the population etc. On the basis of these determinants of demand, business firms forecast future demand and present sales of the product.
ii. Cost analysis: Microeconomics analyses different types of cost, factors determining cost of production and different methods of minimizing cost of production. On the basis of these analysis, business firms can estimate cost of production before making production decision.
iii. Pricing policy: One of the important functions of firm is to determine price of the product. The determination of price of product depends upon the many factors like demand, supply, nature of market, nature of competition, price of substitute goods, price of complementary goods etc. Price affects profit, which determines existence and growth of the firm. Microeconomic analysis provides knowledge of theories production and pricing in order to make sure that the firms get profit continuously.
iv. Optimal resources utilizations: The productive resources are scares in the economy. Microeconomics deals with how productive resources are allocated efficiently in the production of goods and services. It also helps to decide: what to produce, how to produce and for whom to produce.
v. Optimal production decisions: Production decision is concerned with the methods and techniques of production. Business firms always face the problem of appropriate technique and method of production. It is because of limited resources, skill and knowledge. Microeconomics deals with different methods of production, which helps to find out the optimal production decision.
The limitations of microeconomics are as follows:
i. Static: In the study of microeconomics, static analysis is used. In its analysis only one variable is assumed to be variable and other all variable are assumed to be constant or unchanged. In the real life, all variables are, changing unrealistic
ii. Assumptions: Microeconomics is based on the assumptions of full employment and perfect completion in the economy. But in the real world, both these conditions are not found. Therefore, the assumptions of microeconomics are wrong or unrealistic.
iii. Wrong conclusion: Most of the conclusions drawn from the study of microeconomics are wrong. The conclusions derived from microeconomics may not be applicable to whole economy. For example, saving of an individual is good for him but if all individual of the country begin to save, it will be harmful to the economy.
iv. Limited scope: Microeconomics has limited scope. It does not study the many problems like poverty, unemployment, inflations, etc.
v. Applicable only in free market economies: Microeconomics is based on the assumptions of no government intervention or leissez fair economy. Microeconomic theories are applicable only in the free market economic system. It is not applicable in the socialistic economic system.
Define business economics. Explain its scope.
Definition of Business Economics/ Managerial Economics
Business economics is the branch of economics which deals with the application of economic principles and methods for business and managerial decisions of firms. According to Joel Dean, “The purpose of managerial economics is to show how economic analysis can be used in formulating business policies.” The word business economics and managerial economics are synonyms. Therefore, these words are often used interchangeably.
Scope of Business Economics/ Managerial Economics
The scope of business economics includes following topics:
i. Demand analysis and forecasting: Demand analysis is very useful to A Complete TU Solution to Microeconomics for Business the factors determining demand for a product. It provides guideline to create demand. Similarly, a major part of business decision making depends accurate estimates of demand. It means that forecast of future essential before making production decision. Thus, demand analysis forecasting are essential for business planning.
ii.Cost and production analysis: The theory of production and cost analysis are also very important for the functioning of production process a planning. To earn certain level of profit, certain level of goods has to be and produced and to obtain such production; some costs have to be incurred. In this context, business economics deals with determination optimum level of output and minimum level of average cost of production.
iii. Pricing decisions and method: Pricing decisions is an important area of business economics. The success of business firms depends upon their pricing decision. If pricing decision is appropriate, products of the firm can get market and firm can earn profit. On the other, it pricing decision of the firm is appropriate, products of the firm will not get market and thus firm will have to not bear loss. Pricing decisions and methods include determination of price under different market conditions, pricing policies, price forecasting etc.
iv. Profit management: Main objectives of the business firms is to make maximum profit. But profit is always uncertain because of fluctuation in price, change in price of factors of production change in nature of competition, change in technology etc. Therefore, profit planning and profit management are necessary for improving profit earning efficiency of the firm. The important aspects under this topics are theories of profit, profit policies and techniques of profit planning.
v. Capital and investment management: Capital is the foundation of a business. Like other factors of production, it is also a source and expensive factors of production. Therefore, it should be allocated most efficiently. The theory of capital and investment explains the important issues like selection of suitable investment project, efficient allocation of capital, assessing efficiency of capital etc.
vi. Objectives of the firm: Every firm has an objective. The objective of the firm may be many ranging from profit maximization to sales maximization However, a firm may have one objective at a time. The theories regarding objective of the firm are studied under business economics.
vii. Business environment: Business economics studies business environment The phases of business cycle, situation of money and capital market, market structure purchasing power of people etc. are studied under business environment.