Introduction to Business Economics

Lecture Outcomes
• To understand the interplay of business and
economics
• To explore the functionality of business
economics from micro and macro level
News Discussion
What is Economics?

• Economics is all about a economic problem- their

identification, explanation and possible
solutions.

• It is concerned with the study of economic

activities of various individuals and the society.
• Economics deals with economic problems of
the individuals business units, society and that
of the globe. Problems such as-

• 1.Unlimited wants
• 2.Limited resources
• 3.Alternative use of resources
• 4.Problem of choices
Economics is a logic of choice. It teaches the
art of rational decision making in economizing
behavior to deal with the problem of scarcity.
 Micro and Macro Economics
• Prof. Ragnar Frisch coined these two terms in
economics These two terms are derived from
Greek words MIKROS meaning small and
MAKROS means large.
• Micro Economics
Micro economics is that branch of economics that
deals with the study of the behavior and action of
only individual economic unit in detail. Eg.
Demand of consumer

• Macro Economics
Macro economics is that branch of economics
which deals with the study of aggregate or average
behavior of the entire economy. Eg: Demand of
country’s citizen
Difference between Micro and Macro economics

Micro economics Macro economics

1. It studies the small part of 1. It studies the large part of the
the economy economy
2. It is a study of individual 2. It study the whole economy
units of the economy
3. Partial picture of the 3. It gives total picture of the
economy economy
4. It covers limited area of 4. It covers a wider scope
study
5. It gives worms eye view of
5. It gives us birds eye view of
the economy
the economy
 Basic Assumptions

• Rationality
– Consumers maximize utility subject to given money
income.
– Producers maximize profit subject to given resources or
minimize cost subject to target return.

Ceteris Paribus- a Latin phrase

 Types of Economic Analysis

• Micro and Macro

– Microeconomics (“micro” meaning small): study
of the behaviour of small economic units
• An individual consumer, a seller/ a producer/ a firm, or
a product.
• Focus on basic theories of supply and demand in
individual markets
– Macroeconomics (“macro” meaning large): study of
aggregates.
• Industry as a unit, and not the firm.
• Focus on aggregate demand and aggregate supply,
national income, employment, inflation, etc.