Introduction:
There is an old joke in business circles about laying every economist in the world end to end and never reaching a conclusion. Underlying this witticism are at least two important and interrelated questions. Why should people in the business world listen to so-called ‘experts’ when they seem unable to agree amongst themselves about everyday issues and events? What can businessmen and women,dealing with day-to-day problems and concerns, really learn from people who tend to operate in a world which appears to be dominated by abstract theories and ideas? Put another way, what benefits can practitioners – and for that matter students possibly contemplating a career in business – gain from studying a subject which can appear at best impractical and at worst irrelevant? When confronted with questions of this type there is a great temptation to seek refuge in the old adage about undertaking learning for its own sake, but to sceptics this approach usually appears unconvincing and evasive and is, in our view, too defensive. Years of studying, teaching and researching in the broad area of economics has convinced us that the economist’s view of the world – as encapsulated in economic ideas, concepts, theories and models – helps us to understand more fully those aspects of human behavior which are the very essence of business activity: namely, production and consumption. In the jargon, economics provides us with a framework of analysis which can be useful in interpreting and explaining some of the most important and recurring aspects of human behaviour and experience; it helps us to make more sense of the world in which we live and to explain how, why, and in some cases where and when, situations which we encounter on a regular basis are likely to occur (e.g. why house prices are more expensive in certain parts of the country, why retailers alter their prices, why the cost of borrowing may rise).
The claim is not that studying economics will invariably provide us with the ‘right’ answers to business problems, but that it gives us an insight into the nature of the problems themselves and their possible causes and thus helps decision makers – at home, in firms and in government – to search for solutions which are appropriate to the circumstances with which they are confronted. The economic way of thinking is not a substitute for common sense, intuition or judgement, or for other conceptual and analytical approaches to decision making and problem solving, it is just one part of the intellectual armoury we have at our disposal when called upon to explain or react to a situation; it should be used as and when necessary
Objectives
1 To provide a rationale for the study of business economics.
2 To outline the broad environmental influences faced by businesses.
3 To examine key concepts relevant to the study of business decision making and economics.
4 To identify the central themes inherent in this text.
Business Economics
There is some dispute in academic circles as to what should be included in a course on business economics and to what extent, as an area of study, it differs from, say, managerial economics or industrial economics; we have no inclination to enter into this debate. To us, business economics is essentially about the firm or enterprise and in particular about the factors which help to influence its decisions concerning the acquisition of productive resources and the transformation of these resources into goods and services to satisfy human needs and wants: it is about the processes of production and consumption.Apart from obvious concerns with costs, revenues and profitability, there is ample empirical evidence to indicate that in a market-based economy business decisions are shaped by a range of other influences including the firm’s objectives, the competitive nature of the market(s) in which it operates and the opportunities and constraints provided by the broader environment in which it exists and carries out its activities. The economist’s view of these influences on business decision making form the subject matter of we enplane.
Business economics the study of the firm and of the environment in which it operates and makes its decisions production the conversion by firms of inputs into outputs, usually with a view to making profits consumption using up goods and services to satisfy human wants; normally achieved through the act of purchasing
In focusing on production and consumption processes, business economists traditionally seek answers to a number of key questions.These include:
● How can we explain what underlies consumer behaviour?
● What factors affect consumer demand for goods and services?
● How do consumers respond to price signals?
● To what extent is a person’s demand influenced by changes in income or in the prices of competitive products?
● How do firms organise themselves to meet consumer demands?
● What factors influence a firm’s behaviour?
● What is the relationship between a firm’s output,its costs and its profitability?
● How do firms decide on their pricing strategy?
● To what degree does the structure of the market in which a firm operates affect its conduct and performance?
● How far can a firm influence the degree of competition in the marketplace?
These, and other questions, are the ‘stuff’ of business economics; they are also central concerns of decision makers in business organisations.
In examining questions that are essentially to do with demand, supply, markets and prices, business economics looks not only at the influences within a firm’s internal environment,but also at how firms as producers interact with their consumers and with other businesses (e.g. as suppliers, customers or competitors) and to what extent such interactions might affect and explain their behaviour. Increasingly it is also concerned to describe and analyse other aspects of the relationship between a firm and its external environment, including the role of government in shaping business behaviour, the impact of business activity on the natural environment and the nature of the market for resources such as labour. These are issues which we believe should also be examined as part of a business economics course, together with the question of how insights offered by economists can help to shape business strategy.
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