Explain Nature of Business Economics!

A Traditional economic theory has developed along two lines; viz., normative and positive. Normative focuses on prescriptive statements, and help establish rules aimed at attaining the specified goals of the business. Positive, on the other hand, focuses on the description it aims at describing the manner in which the economic system operates without staffing how they should operate. Nature of Business Economics!

The emphasis in business economics is on normative theory. Business economic seeks to establish rules which help business firms attain their goals, which indeed is also the essence of the word normative. However, if the firms are to establish valid decision rules, they must thoroughly understand their environment. This requires the study of positive or descriptive theory. Thus, Business economics combines the essentials of the normative and positive economic theory, the emphasis being more on the former than the latter.

Understanding the Characteristics or Nature of Business Economics

1. Microeconomic nature: Business Economics is Microeconomics in nature because it deals with the matters of a particular business firm only.

2. Use of economic theories: Business Economics uses all economic theories relating to the profits, distribution of income etc.

3. Realistic one: Business Economics is a real science. It studies all matters concerning business organization by considering the real conditions existing in the business field.

4. Normative science: Business Economics is a normative science. It studies the matters concerning the aims and objectives of a business firm. Determines the methods to be adopted for achieving such objectives. Also makes inquiry into the good and bad in decision making. Hence it is a normative science.

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5. Use of Macroeconomics: Even though Business Economics has the nature of Microeconomics, it also uses Macroeconomics approaches frequently. Certain matters in Macroeconomics like business cycles, national income, public finance, foreign trade, etc. which are essential for Business Economics. So, Business Economics uses the Macro Economics phenomenon for taking business decisions.

Another five Main Characteristics of Business Economics

Some of the main characteristics of business economics are as follows:

1. Micro in Nature: Business economics is micro-economics in nature. This is due to the study of business economics mainly at the level of the firm. Generally, a business manager is concerned with problems of his own business unit. He does not study the economic problems of an economy as a whole.

2. The basis of Theory of Markets and Private Enterprises: Business economics largely uses the theory of markets and private enterprise. It uses the theory of the firm and resource allocation of private enterprise economy.

3. Pragmatic in Approach: Business economics is pragmatic in its approach. It does not involve itself with the theoretical controversies of economics. Yet it does not relegate the realities of business decision-making to the background by bringing in abstract assumptions. While economic theory abstracts from realities of the individual business units to build up its theories, managerial economics takes proper note of the particular economic environment in which a firm works.

4. Normative in Nature: Business economics is also called normative economics which prescribes standards or norms for policymaking. Business economics is prescriptive rather than descriptive in nature. Economic theory, we try to explain economic behavior: Business economics, we try to prescribe policies for a business manager which are most likely applied to achieve his objectives. In economic theory, we build ‘laws’ such as the law of Demand and the Law of Diminishing Returns. In business economics, we apply these laws for policy planning at the level of a firm.

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5. Macro Analysis: Macroeconomics which deals with the principles of economic behavior for the economy as a whole is also useful for business economics. A business unit operates within some economic environment which is in turn shaped by the behavior of the economy as a whole. Therefore, a business manager must know the external forces working in his business environment.

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