Introduction to business economics and fundamental

1. Nature and Scope of Economics
BSC AGRI 2
PAE
UNIT 1

2. Introduction
The word Economics is derived from the Greek
words “OKIOS NEMEIN” meaning household
management .
Man is bundle of desires. Goods and services satisfy
these wants. But almost all the goods are scarce. To
produce goods land, labour, capital and organization
are needed. Economic problem arises because of
scarcity.
Economics is a study of economic problems. Wants
are motive force for economic activity. Wants leads
to efforts. Efforts secures satisfaction.

3. Efforts
satisfaction
Wants

4. Economic Activities
1. Consumption: Extracting utility from goods
and services.
2. Production: Production of goods and
services which posses utility.
3. Exchange: means buying and selling of goods
and services. It is link between consumer
and producer.
4. Distribution: Sharing of income by the four
factors of production.

5. Economics Definitions
1. Wealth Definition. Adam Smith
2. Welfare Definition. Alfred Marshall
3. Scarcity Definition. Lionel Robbins
4. Growth Definition. Paul Samuelson

6. 1.Wealth Definition.
• Father of Economics Adam Smith in his book “
Wealth of Nations 1776” defined economics is the
study of wealth.
• J.B Say, J.S Mill, Walker, B.Price all agreed that
Economics is concerned with wealth.
• In this definition wealth is given first place, man has
given second place

7. 2. Welfare definition.
• Alfred Marshall in his book “Principles of Economic
Science-1890” defined Economics is the study of
man kind in the ordinary business of life.
• “Economics is one side a study of wealth; and on the
other side more important side a part of study of
man
• He made economics is a science of human welfare.

8. Welfare definition-points
1. Mainly concerned with the study of man in
relation to wealth.
2. First place to man, second place to wealth.
3. It studies man not in isolation but a member
of a social group.
4. Definition considered only material welfare,
ignored immaterial welfare.

9. 3. Scarcity Definition.
Lionel Robbins in his book ‘Nature and
Significance of Economic Science-1932
given scarcity definition.
“Economic is the science which studies
human behavior as a relationship
between ends and scarce means which
have alternative uses.”

10. Scarcity Definition-main Points
1. Unlimited wants.
2. Scarce means.
3. Means have alternative uses.

11. Superiority of scarcity definition
1. Robbins included material and non material
goods ,widens the scope of economics.
2. He made economics a positive science.
3. His definition is universal.

12. Growth definition
• Economics is the study of how people and
society end up choosing with or without
money to employ scarce productive resources
that could have alternative uses to produce
various commodities and distribute them for
consumption, now or in the future among
various persons and groups in society.
Economic analysis the cost and benefits of
improving patterns of resources use.

13. Growth Definition-points
1. Scarcity : Unlimited wants ,scarcity of resources and
alternative uses.
2. Dynamism: The importance of time is brought in the
definition.
3. Economic growth: His definition gave importance to
economic growth
4. Wide scope: Economic choice exist not only in a monetary
economy but also in a barter economy.
5. Problem of choice: Definition explains problem of choice in
present and future in dynamic conditions.

14. Micro- Macro Economics
Economics noble prize winner (1969), Ragner Frisch
was the first to use the terms micro and macro in
economics in 1933.
The terms micro and macro derived from Greek.
Mikros (small) and makros (large).
Micro means individualistic and macro aggregative.

15. Micro Economics.
• Micro economics is the study of particular
firms, households, individual prices and
particular commodity.
• Micro economics is based on the assumption of
full employment and ‘ceteris paribus’ (other
things remain constant).
• Micro economics was popularized by David
Ricardo, Marshall, J.B Say and J.S Mill.
• Micro economics called as ‘ Price Theory.’

16. Macro Economics:
• Macro economics is the study of economic system as
a whole.
• Macro economics studies aggregates values like
National Income, National output, general price
level, total consumption, saving and investment of a
country.
• Macro economics is called ‘ Income and Employment
theory.’
• J.M Keynes popularized macro Economics
• Where micro economics explain a tree in the forest,
macro economics explains all the trees in the forest.

17. Difference between Economics and
Business Economics
 Economics is the social science that studies the production, distribution, and consumption
of goods and services. Economics aims to explain how economies work and how economic
agents interact. Economic analysis is applied throughout society, in business and finance but
also in crime, education, the family, health, law, politics, religion, social institutions, and
war. Economic textbooks distinguish between microeconomics ("small" economics), which
examines the economic behavior of agents (including individuals and firms) and
"macroeconomics" ("big" economics), addressing issues of unemployment, inflation,
monetary and fiscal policy.
Business economics (also called managerial economics), is a branch of economics that
applies microeconomic analysis to specific business decisions. As such, it bridges economic
theory and economics in practice. It draws heavily from quantitative techniques such as
regression analysis and correlation, Lagrangian calculus (linear). If there is a unifying theme
that runs through most of business economics it is the attempt to optimize business
decisions given the firm's objectives and given constraints imposed by scarcity, for example
through the use of operations research and programming

18. Source
• 1. Elementary economic theory - K.K. Dewett
and J.D. Verma
• 2. International Economics - B. Mishra
• 3. Fundamentals of Agricultural Economics -
A.N. Sadhu and A. Singh
• 4. Economics - Paul A. Samelson and W.D.
Nordhans (Pearson Publications)