The Economics of Business

Business management is a discipline in applied economics that utilizes statistical and economic methods to examine the economic activities of companies and the role of individual elements in the formation of firm relationships and organizational structures. It studies the effect of competition on the firm, the effect of external disturbances on the firm and the role of internal processes and structures in determining the performance of the company. A business can be described as a process oriented organization pursuing specific goals. A firm exists to produce a product that sells.

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The Economics of Business

Business management is a discipline in applied economics that utilizes statistical and economic methods to examine the economic activities of companies and the role of individual elements in the formation of firm relationships and organizational structures. It studies the effect of competition on the firm, the effect of external disturbances on the firm and the role of internal processes and structures in determining the performance of the company. A business can be described as a process oriented organization pursuing specific goals. A firm exists to produce a product that sells.

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The study of economics deals mainly with how people, institutions and groups interact to produce and distribute goods and services. In applying this economics in the firm learning is made possible by the use of applied economics. The scope of applied economics includes business, institutions, industries, government, micro-economics and macro-economics. Applied research in the field of business has many topics. These include marketing, pricing, decision-making, entrepreneurship, investment, organizational behavior and human resources. There are also microeconomic issues such as production, consumption, distribution, financial market, welfare, pricing, job markets, macroeconomic impact and public finance.

An important area of applied economics is business economics. The study of business economies seeks to understand why firms exist, how they relate to one another and what they do to generate surplus income. The discipline of business studies seeks to understand how firms develop, their structure, operations and their environment. The major areas of application in business economics are: macro-economics, which studies the broadest economic activities of countries and their economies; micro-economics which study the micro-economic aspects of individuals and organizations; environmental issues which are concerned with issues of pollution, land use, land management, sustainable development and natural resources.

The breadth of business studies is due to the complex relationship between economics, the law and politics of a country and the individuals who control the means of production. The areas of application in applied economics include: public finance, economic growth, product markets, entrepreneurship, economic institutions and monetary policy. Public finance focuses on those institutions and policies that can affect the supply of money to a nation. Economic growth studies the effects of government programs and policies on an individual’s ability to create wealth.

Managerial economics is related to business economics in the broadest sense. In this theory managers are viewed as agents of production in relation to their subordinates. Within the broad scope of managerial economics there are four main areas of concentration. These include research, technology, business cycles and financial markets. All these factors have direct and indirect influences on the production process and outcomes of business enterprises.

Nonprofit organizations, in addition to the other types of businesses in existence, face many problems in trying to meet the needs of their members. Many non-profits are forced to take action in response to situations that occur beyond their control. The principles of business economics point to the fact that any problems that arise from underutilization of a particular resource should be solved through efficient utilization of that resource. By following some of the basic business economic principles such as cost-effective management and by effectively communicating the advantages and disadvantages of particular programs and services to members and partners, a non-profit organization can effectively overcome such obstacles and increase its effectiveness.

In the past several years there has been a growing interest by businesses in incorporating non-profit organizations into their overall business strategy. In doing so it increases the value of the company to both investors and partners. When profit margins are diminished and losses grow in line with increases in costs, profitability is threatened. By employing business economists and incorporating non-profit economics into their operations a company not only maintains existing profits by using the best resources available but also by creating new markets that will generate revenue.

The business world has proven the effectiveness of managerial economics in both international and national arenas. While in the United States there are many areas of concern such as excessive regulation or labor shortages, the business world has identified specific problem areas in all areas of the economy. By identifying and analyzing business-oriented issues such as the efficiency of government programs and their impact on the economy as a whole and by providing non-economic analysis tools such as profit margins to businesses, a sound analysis of the economics of business can be made. As business begins to learn the value of a solid understanding of business economics a bright future lies ahead for both companies and consumers.

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