What Is Business Economics? Definition, Characteristics, Scope & Importance


Do you want to know what is business economics? Business economics include organizational economic problems and illustrate how to solve it. If you study business economics then it will develop the skills to examine economic problems from all angles and develop taking appropriate decisions.

What is Business Economics?

Business economics integrates economics theory with business practice to facilitate decision-making and planning through management. Business economics, also known as managerial economics, generally refers to integrating economic theory with business practice. Theories of economics provide tools that explain various concepts such as demand, supply, cost, price, competition, etc. Business economics applies these theories to a business unit for making a better decision.


Business Economics Definition

The definition of economics by different economists has a different perspective, but the essence is the same. The following are some popular definitions of business economics. Managerial economics is dealing with applying economic concepts and economics to the problems of formulating rational decision making.-According to Mansfield.

Managerial economics is concerned with applying economic principles and methodologies to the firm or organization’s decision-making process. It seeks to establish rules and policies to facilitate the achievement of the desired economic goals of management.- According to Douglas 

Management economics applies the principles and methods of economics to help analyze a business or other organization’s management problems and find solutions to advance such an organization’s best interests.-According to Davis and Chang.

From the definition of the business economy mentioned, it is concluding that the business economy is a link between two branches, which is management and economicsManagement discipline focuses on a variety of principles that support the decision-making process of organizations. On the other hand, economics relates to the best allocation of limited institutions to achieve companies’ goals.

Characteristics of Business Economics

Characteristics of business economics are:


The business economy is characteristically microeconomic. This is because microeconomics describes in detail the problems of an individual business institute. Furthermore, it is not under the study to solve the problems of the whole economy.

Normative science: 

Managerial economics is an ideal science. It concerns what management should do in certain situations. It sets the goals of the enterprise. It then develops ways to achieve these goals.


Business economics is pragmatic. It is concentrating on making economic theory more application-oriented. It tries to solve managerial problems in their day-to-day functioning.


Managerial economics is prescriptive rather than descriptive. It prescribes solutions to various business problems.

Uses macroeconomics: 

Macroeconomics is also useful for business economics. Macro-economics provides an intelligent perception of the environment where the environment is conducting deeply.

Management oriented: 

A managerial economy’s primary goal is to help management to make the right decisions and prepare plans for future policies.

Scope of Business Economics

The scope of business economics is quite broad. Business economics involves applying various economic tools, theories, and methodologies for analyzing solving different business problems.

Two Categories

There are two categories would find in business issues to which economic theories can be directly applied, namely:

  • Microeconomics is applying to internal or operational issues.
  • Macroeconomics is applying to external or environmental issues.

Therefore, the scope of Business Economics is going to discuss under these two heads.

Microeconomics is applying to solve internal issues.

Operational issues include all those issues arising within the organization and fall within the management’s purview and control.

The following Microeconomic theories are dealing with these issues.

Demand curve analysis and forecasting: Demand analysis is a process of identifying potential consumers. The number of goods they want to purchase, and their price is willing to pay for it.

This process is essential for an organization to analyze the demand for its products and produce accordingly and help organizations to plan and decide on strategic issues.

Cost and benefit analysis (CBA): By analyzing costs, management can estimate the costs required to run the organization successfully.

Cost analysis is helping firms in determining hidden and uncontrollable costs and taking measures for effective cost control. Also, help in determining the return on investment. It is called (ROI).

Pricing decisions, policies, and practices: Pricing is the critical factor of business economics. It is a process to determine the value of a product or service that an organization receives in exchange for its product/service.

The profit of an organization depends on its pricing strategies and policies. Business economics is including many pricing-related concepts, such as pricing methods, product-line pricing, and price forecasting.

Profit maximization: Profit generation and maximization is the main aim of every organization. However, there is an exception for non-profit organizations.

To maximize profit, organizations need to have complete knowledge about various economic concepts, such as profit policies and techniques and break-even analysis.

Capital management: Organizations often find it challenging to make decisions that are relating to capital investment. These decisions need sound knowledge and expertise in various economic aspects.

To make sound capital investment decisions, an organization needs to determine various aspects, such as the cost of capital and return rate.

Risk and Uncertainty Analysis: Businesses are generally operating under conditions of risk and under uncertainty.

Analysis of risks and uncertainties are helping the business firm arrive at efficient decisions and formulating plans based on past data, current information, and future prediction.

Macroeconomics is applying to external issues.

Environmental factors have a Significant influence on the functioning & performance of a business unit.

Scope of macroeconomic business factors relate to:

  • The business cycle’s economic system stage is the general trend of national income, employment, prices, savings, and investment.
  • Government policies such as industrial policy, competition policy, monetary and scale policy, price policy, foreign trade policy, and globalization policy.
  • Working of ­nancial sector and capital market
  • Socio-economic organizations like trade unions, producer and consumer unions, and cooperatives.
  • Social and political environment: Business decisions not possible without considering the present and future environmental factors.

Business decisions nobody can take without considering present and future environmental factors. Management of any fi­rm has no control over these factors. It should ­need re-tune its policies to minimize their adverse effects.

Importance of Business Economics

Business economics plays a vital role in decision making in an organization. Decision making is the process of selecting the best action from the available alternatives. The role and responsibilities of managerial economics are explaining below.

The following points are explaining the importance of business economics:

  • Business economics covers various concepts, such as Demand and Supply analysis; Short-run cost and Long-run costs, and Law of Diminishing Marginal Utility. These concepts support managers in identifying and analyzing problems and finding solutions.
  • It helps managers identify and analyze various internal and external business factors and their impact on their operational function.
  • Business economics helps managers to apply various policies, such as pricing policies and cost policies, based on the economic case study and final finding.
  • Organizations can predict the future by studying various economic variables, such as cost production and business capital.

Business economics helps establish relationships between different economic factors. It includes incomes per year, profits per year, losses per year, and the market structure. This study helps in guiding managers in effective decision making and running the organization smoothly.

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Difference Between Business Economics and Economics

  • Business economics is a modern concept and under development.
  • Business economics covers practical aspects.
  • In Business economics, the central area is to solve the problem of organizations.
  • In business economic, both economic and non-economic factors are considering to solving an issue.
  • Economics is a traditional subject that has prevailed for a long time.
  • In economics, the problems of individuals and the whole country are describing.
  • Economics mainly covers theoretical aspects.
  • In economics, only economic factors are considered.

Both microeconomics and macroeconomics fall under economics. Only small eclipses fall within the business economy. The economy has a broad scope, and it covers the economic affairs of the whole country. 

Business economics is a part of the economy and is limited to the economic problems of the organization.

Summary of What is Business Economics?

Business Economics comprises economic knowledge, logic, theories, and analytical tools that are using for rational business decision-making. In brief, it is applying in economics that ­fills the gap between economic theory and business practice.

The scope of business economics is quite broad. It covers most of the practical problems that a manager faces. Business Economics is having a link between two disciplines; these are management and economics.

The management discipline is focusing on many principles that aid the decision-making process of organizations. On the other hand, economics is always relating to the optimum allocation of limited resources for obtaining organizations’ objectives.

Therefore, we can say that business economics is a particular discipline of economics that can be applied in organizations’ business decision-making. Also, the importance of business economics has a vital role in decision making in an organization.

FAQ: What Is Business Economics

What is business economics in simple words?

Business economics is a field where economics are describing financial, organizational, market-related, and environmental problems. Business economics covers issues such as deficit concepts, product causes, distribution, and acceptance.

What are business economics and its importance?

Business economics helps to establish relationships between different economic factors. Examples are like income, profit, loss, and market structure. This is helping in guiding managers in effective decision making and running the organization.

What are business economics and its scope?

Business Economics is covering most of the problems that a manager faces. For that reason, the scope of business economics is wide to apply. Different economic theories apply to them since they start facing internal/operational and external and environmental issues.

Is business economics the right major?

Bachelor’s degrees in business economics provide better preparation for students who plan to pursue a business administration degree. This degree often leads to a career in business management. Economics is also one of the most common undergraduate degrees for students entering law school.

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