CA FOUNDATION_PAPER 4_

ECONOMICS

CHAPTER-1
NATURE & SCOPE OF BUSINESS
ECONOMICS

(BY-JATIN LAMBA)
 Word • Derived from a Greek word
Economics • Oikonomia- means Household

• „Oikonomia’ made up of two words

Oikonomia • ‘Oikos’ (a house) and ‘Nomos’
(management)

• Collectively it means ‘Household

Economics= Management.’
 •Economics was known as Political
Till 19th Economy.
Century

•A book titled- “An Inquiry into the

Nature and Causes of the Wealth
In 1776 of Nations.” By Adam Smith

•Adam Smith
Father of
Economics
Two Fundamental Facts Which
Form the Subject Matter of
Economics
The means to
satisfy these
Human
unlimited
Wants are
wants are
Unlimited
relatively
scarce
 DEFINITIONS & SCOPE OF ECONOMICS
Science of wealth: “An inquiry into the nature and causes of the wealth
of the nations” by Adam Smith. (1776)
“Science which deals with wealth” by J.B. Say.

Science of material well-being: “Economics is a study of mankind

in the ordinary business of life. It examines that part of individual
and social action which is most closely connected with the attainment
and with the use of the material requisites of well-being. Alfred
Marshall.(1890)

“The range of our inquiry becomes restricted to that part of social

welfare that can be brought directly or indirectly into relation with
the measuring rod of money” A.C. Pigou
 DEFINITIONS & SCOPE OF ECONOMICS
Science of choice making: “Economics is the science which studies
human behaviour as a relationship between ends and scarce means
which have alternative uses”. Lionel Robbins(1932)

The definition deals with the following four aspects:

Economics is a science
Unlimited ends: (Ends refer to wants)
Scarce means.
Alternative uses
 DEFINITIONS & SCOPE OF ECONOMICS

Science of dynamic growth and development: “Economics is the

study of how men and society choose, with or without the use of
money, to employ scarce productive resources which could have
alternative uses, to produce various commodities over time and
distribute them for consumption now and in the future amongst
various people and groups of society”. Paul A. Samuelson. (1948)
 DISTINCTION BETWEEN MICROECONOMICS
AND MACROECONOMICS

Micro Economics Macro Economics

 It is the study of individual  It is the study of economy
economic units of an as a whole and its
economy. aggregates.
 It is primarily concerned  It is concerned with the
with determination of determination of aggregate
price and output of a output and general price
commodity or service. level in the economy as
whole.
 3. Its main tools are
demand and supply of a  Its main tools are aggregate
particular commodity or demand and aggregate
supply of the whole
factor of production. economy.
 In microeconomics price  In macroeconomics national
and output determination output or income is studied
of a commodity is studied while assuming micro
while assuming that macro variables remain to be
variables remain constant. constant.
 BUSINESS ECONOMICS OR
MANAGERIAL ECONOMICS
 Business Economics may be defined as the use of economic
analysis to make business decisions involving the best use of
an organization‟s scarce resources.
 It includes application of selected quantitative techniques
such as linear programming, regression analysis, capital
budgeting, break even analysis and cost analysis.
 While Business Economics is basically concerned with Micro
Economics, Macro economic analysis has got an important
role to play.
 There are two categories of business issues to which economic
theories can be directly applied, namely: Microeconomics
applied to operational or internal Issues and Macroeconomics
applied to environmental or external issues.
BUSINESS ECONOMICS OR
MANAGERIAL ECONOMICS

A component of
A normative
Applied
science
Economics
Is
Tackles interdisciplin Business
practical ary and Economics is
problems pragmatic in also an Art
approach
 SCOPE OF BUSINESS
ECONOMICS
Demand Analysis & Forecasting
Production & Cost Analysis
Profit Analysis
Market Structure
&Pricing Policies

Theory of Capital &

Inventory Resources Investment
Management Allocation Risk & Uncertainty
Analysis
ECONOMIC • Problem of Choice Making
• Scarcity is the mother
PROBLEM of Economic problems

• Unlimited Human Wants

CAUSES • Scarce/Limited Resources

• Alternative Uses of
Resources

ROOT/MAIN • SCARCITY Of Recourses

CAUSE
 What to
produce?

What
provisions (if CENTRAL
any) are to How to
be made for ECONOMIC produce?
economic PROBLEMS
growth?

For whom to
produce?
 ECONOMIC SYSTEM

The sum total of arrangements for the

production & distribution of goods &
services in the society

The system which provides the sources of

livelihood to the people of a society
TYPES OF ECONOMIC
SYSTEM

CAPITALIST SOCIALIST MIXED

ECONOMY ECONOMY ECONOMY
(US, UK, HONG
KONG, SOUTH
KOREA ETC.) (INDIA)
 • Uses tool of Price Mechanism to
CAPITALIST Solve Basic Economic Problems
ECONOMY

• Uses tool of Central Planning to

SOCIALIST Solve Basic Economic Problems
ECONOMY

• Uses a mix of both Price

Mechanism & Central Planning to
MIXED
ECONOMY Solve Basic Economic Problems