Business or economics is the science of doing economic activity to enhance the wealth of society. Economics is used to provide information about how people, firms, governments and institutions organize their economic activities to maximize efficiency and productivity. The scope of business or economics is vast as it relates to the business world. It includes such areas as macro-economic thinking, micro-economic issues, and business cycles.
Micro-economic issues are those involving minute details of a business environment. Microeconomics is an area of study that is very narrow in its focus. It includes such areas as pricing, trade, production, marketing, decision making, entrepreneurship and financial aspects. Micro-economic factors are usually focused on the aspect of the firm’s production. There are many microeconomic factors affecting organisations that are important to an organisation.
Managerial economics is another branch of business economics that studies the relationship between human activities and national income. It studies the interactions among people in the firm and society at large. It also deals with the role of managers in the economic system and how they affect economic activities. The major areas of managerial economics that it studies are marketing, accounting, decision making, production, and international business.
Economics considers human activities to be the drivers of economic activity. It studies how people use scarce resources to create economic value. There are two main theories that are used to describe resource allocation. The theory of diminishing returns to existing inputs and the theory of relative surplus production are the two that are most commonly used.
Many of the modern day economic theories on global economics are descriptive in nature. These theories describe how various economic variables affect each other in a given environment. A descriptive approach to economics gives rise to four main theories on global economics: the theory of perfect competition, the theory of comparative advantage, the theory of geometric demand, and the theory of relative international stability. The emphasis in this school is on the analysis of the effects of changes in national income distribution and prices and quality. The four theories form a broad description of the economic world and its functioning, which in turn provides an explanation of how firms and consumers interact with each other in the market.
Aggregative and optimization concepts are applied in managerial economics. Optimization refers to a process by which a firm makes progress toward a defined goal. In applied managerial economics, the theory of optimization states that economic entities should maximize their potential for gain over cost in order to maximize the net present value of future welfare. A firm that fails to attain the maximum rate of return on investment will either close shop or go bankrupt. On the other hand, if the firm achieves the rate of return that is deemed optimal, then additional inputs will not add to the total cost, but rather to improve the output and allow for expansion.
Another important area of application in business economics is microeconomics, which studies the interactions of individual agents within a market. These agents include customers, suppliers, employees, and government officials. Microeconomics is closely related to decision science, with research being conducted on what factors affect the decisions of individual agents. Some microeconomic principles of business economics include theory of demand, theory of optimization, theory of trade, and the theory of production. All these theories attempt to describe the dynamics of business markets and how changes in certain economic factors can affect decisions of agents within a firm. They also attempt to describe the economic factors that can cause the price of a good to drop below the value of cash in hand.
A modern variation of economics is the market economy, which attempts to capture aspects of production beyond the firm’s control. Market economies focus on how external forces, such as demand, affect the production of a product. For example, in a market economy, a firm that produces goods in bulk may sell its surplus to a wholesaler who will sell it to retailers at a profit. Within a market economy, consumers may be expected to be choosy about the firms they buy from because other firms are likely to be selling similar products at lower prices. Economic textbooks on business theory recognize the existence of multiple economies within a market economy.