Department Of

Human Resource Management

Course Code : BHRM 11252

Course Title : Business Economics 1

Academic Year : 2018/2019

Semester : 1st semester

Year : 1st year (2020)

Lecturer/(s) : Dr. M.P.N. Janadari

Assignment Topic : Assignment 1

Student Number : BM/2018/165

Student Name : H.M.P.C.M.Herath.

 BM-2018-165

Assignment number 01

1. What is mean by the economics

• Economics is a very attractive subject because it describes how human beings make
choices in an effort to maximize utility. It also describes how a society try to allocate
their limited resources in other to achieve growth. The term economics is derived from
two words economy and science meaning the science of the economy or the science of
proper utilization of resource. To understand the subject matter of economics, we
should look at its different definitions by different scholars. The basic concepts of
economics are very important in other to give a better understanding of the definitions.
Any economy is wanted to understand the basic economic problems of any society
because other problems revolve around these problems. So, economics helps to
understand these basic problems. Economics is mainly studied how an economy is
made different economics choices in a country and it is studied of human efforts to
satisfy what appear to be unlimited and competing wants through the careful use of
relatively scarce resources.
2. List down at least ten different definitions about the economics

1) Economics is the social science that analyzes the production, distribution, and
consumption of goods and services. (Harper)2001
2) Economics aims to explain how economies work and how economic agents interact.
Economic analysis is applied throughout society, in business, finance and government,
but also in crime, education, the family, health, law, politics, religion, social
institutions, war, and science. (Iannaccone, L. R. 1998).
3) economics is a Social science that analyzes and describes the consequences of choices
made concerning scarce productive resources. (Allen)1977
 4) economics is a Study of the economy. Classic economics concentrates on how the
forces of supply and demand allocate scarce product and service resources.
(Rutherford)1996
5) The study of the relation of available scarce means to supply for a proposed end;
economists assume that people have wants and needs, and then study how societies are
organized to supply them, trying to establish whether one method is better than another.
6) economics, study of how human beings allocate scarce resources to produce various
commodities and how those commodities are distributed for consumption among the
people in society
7) Economics is the study of people in the ordinary business of life. (Marshal, 1890)
8) Economics is the science which studies human behavior as a relationship between
given ends and scarce means which have alternative uses. (Robbins, 1932)
9) Economics is the "study of how societies use scarce resources to produce valuable
commodities and distribute them among different people. (Paul A. Samuelson 1948)
10) economics is a science of wealth which studies the process of production, consumption
and accumulation of wealth. (Adam Smith)
3. Differentiate microeconomics from the macroeconomics

• Microeconomics
✓ Microeconomics is studied of individuals, households and firms' behavior in decision

making and allotment of resources. Microeconomic study contracts with what choices

people make, what features influence their choices and how their decisions affect the goods

markets by effecting the price, the supply and demand.

• Macroeconomics

✓ Macroeconomics is the main part of economics that studies the behavior and efficiency of

an economy as a whole. It mainly focuses on the aggregate changes in the economy such

as unemployment, growth rate, employment, gross domestic product and inflation.

• Differences between microeconomics and macroeconomics.

 Microeconomics Macroeconomics

I. Microeconomics studies the particular i. Macroeconomics is a study about the

market segment of the economy whole economy, that covers several
market segments
II. Microeconomics deals with different ii. Macroeconomics deals with various
issues like demand, supply, factor issues like national income,
pricing, product pricing, economic distribution, employment, general
wellbeing, production, consumption, price level, money, etc.
etc.
III. Applied to internal issues iii. Environment and external issues
IV. Useful in regulating the prices of a iv. Eternal stability in the broad price level
product alongside the prices of factors and solves the main issues of the
of production (labour, land, economy like deflation, inflation,
entrepreneur, capital, etc) within the rising prices (reflation), unemployment
economy and poverty as a whole

4. List down the lessons you have to cover under microeconomics

➢ Microeconomics is studied about the economic factors of an economy separately.

• Supply
• Demand
• Elasticity
• Opportunity cost
• Market equilibrium
• Forms of competition
• Profit maximizing
• Consumer behavior
5. What is meant by the business economics

• Business economics is the field of applied economics that studies the financial,
institutional, market and environmental issues facing corporations. Business
Economics assesses certain factors affecting companies - business organization,
management, distribution and strategy using business theory and quantitative methods.
Research titles in the field which are related to the business economics may content
how and why corporations are expanding, the effect of entrepreneurs, interactions
among corporations, and the role of governments in regulation.
• Business economics focuses on the economic issues and problems related to business
organization, management, and strategy. Issues and problems.
6. How does it help to take business decisions

• Business economics helps the business in in-depth knowledge of business economic

environment of business relating to industrial policy, licensing policy, economic planning
monetary and fiscal framework and overall economic policy. The role of business
economics in business policy formulation is being discussed in the following points.
1. Business economic policy
➢ Business economics helps in formulation of economic policy. The economic policies’
subjects are monetary policy, fiscal policy, incomes policies and policy on balance of
payment. Economic policies must be such that it encourages the business environment
and provides motivation to business tasks.

2. Economic planning
➢ A serious effort towards self-sustained growth of business is only possible by efficient
planning. Planning is now a days equal with growth and development. Identification of
importance divisions, estimation of resources and coordination among various sectors
of economy can be done through proper planning. Planning guides the growth in
necessary corners.

3. Solving macro paradoxes

 ➢ Business economics helps in solving macro paradoxes like paradox of thrift related to
savings, paradox of assumption by commercial banks that all depositors would not
withdraw their money on any particular day and their right to withdrawal.

4. Tracing effect of government policy on business

➢ Business economics helps in tracing the implications of government policy changes on
existing business activity.

5. Help in solving problem of general unemployment

➢ Effective demand is the focal point of business economics. Decrease in effective
demand carries economic depression and thereby general unemployment. Then, the
level of effective demand must be enhanced in order to increase the level of
employment.
7. Briefly explain the fundamental economic questions
• Any economy has to face to the fundamental economic questions. The major reason for the
basic economic questions, is “scarcity of the resources”. There are three fundamental
economic questions which have been named by the economists.
1. What should we produce?
2. How should we produce?
3. For whom should we produce it?
• What should we produce?
✓ What will societies do when the production resources are limited? They decide which good
and service they want to produce. Anymore, they also determine the quantity required. For
example, should we produce more motor bicycles or more butter? Do we select for the
capital goods like machineries, equipment, etc. or consumer goods like mobile phones,
televisions etc.? While they sound basic, societies should decide the kind and quantity of
every single good and service to be produced.
• How should we produce?
✓ A society can produce the goods and services by using various methods. For example, an
organization can produce furniture by using people or machines. When people are using,
 require more labour and when machines are used, need higher power and capital
investment.
✓ Thus, society should choose between the techniques to produce the goods and services.
Similarly, for all goods and services, similar decisions are necessary. Anymore, the choice
depends on the availability of different methods of production and their prices. Usually, a
society wants for a technique that optimally utilizes its available resources.
• For whom should we produce it?
✓ Can the societies fulfill each and every human wants and needs? Actually, every society
cannot do it because, all resources are limited in every society. Therefore, they have to
decide on who gets what share of the total output of goods and services produced. In other
words, societies decided on the distribution of the goods and services among the people of
the society.

8. Show it by using a production possibility curve

1. What should we produce?

C
B
Capital goods

P1

F D
R

0 G H
Consumer goods

➢ The economy produces capital goods and consumer goods. In deciding the total output of
the economy, the society has to choose that combination of the capital goods and consumer
goods which is in keeping with its resources. It will have to choose among the combinations
B or D which gave the highest level of satisfaction. If the society decides to have more
capital goods, it will choose combination B and if economy wants more consumer goods
it will choose combination D.
 2. How should we produce?
➢ The next basic problem of an economy is to decide about the techniques or methods to be
used in order to produce the required goods. This problem is primarily dependent upon the
availability of resources within the economy.
Capital goods

P
B C

0 P0 P1
Consumer goods

3. For whom to produce?

➢ The third basic problem to be decided is the allocations of goods among the members of
the society. The allocation of basic consumer goods or necessities and luxuries comforts
and the among the household takes place on the basic of among the distribution of national
income.
 B
C
luxuries

F D

P
0 G H
necessities
9. Identify the basic characteristics of the different economic structures
• An economic system describes how a country’s economy is organized Because of the
problem of scarcity. Every country needs a system to determine how to use its productive
resources. There are three economic structures that we can identify.
1) Free enterprise economy.
2) Mixed economy.
3) Centrally planned economy.
• There are several basic characteristics of economic system as follows,
✓ Who makes economics decisions? (private sector or public sector)
✓ The government role in the economy.
✓ What motivates the economy?
✓ How are resources allocated?
✓ The level of competition. (high level or low level)
✓ What kind of goods produce by the economy? (high profitability goods or welfare goods)
✓ The technique which used to produce. (labour intensive or capital intensive)
✓ For whom produce the goods and services?
10.What are the merits and demerits of different structures
A free enterprise economy A central planned economy A mixed economy
• Private ownership • State ownership of • Private and state
the means of the means of ownership of the
production. production. means of
Merit; higher productivity. production.
Demerit; society gets Merit; a classless society & Merit; A more equal
decided into propertied vs less income inequality. distribution of national
property-less classes or Demerit; lower income is achieved through
haves and have nots. Gives productivity. progressive.
rise tension in society. Demerit; State enterprises
may not be run efficiency.

• Economic activities • State is the • Goods and services

are guided by profit entrepreneur and the provided by the
motive. motive is to promote public sector may be
societal welfare. priced reasonably.

Merit; altruistic motive. The prices of goods and

Merit; higher efficiency. Demerit; No economic services provided by the
Demerit; individuals can act freedom. Discourages private private sector will include a
in ways that harm society. initiative & entrepreneurship. profit margin.

• State provides
answers to the basic • Role of Government
is important in the
• Price mechanism to economic questions.
modern company.
the basic economic Merit; central planning can be
✓ To provide public
questions. more national in providing
goods.
public utilities such as
Merit; An automatic
regulator of the economy
directing resources to their
most profitable uses.
Demerit; some goods &
services would not be
provided by the private
sector.
electricity and water which are ✓ To provide merit
in the nature of national goods.
monopolies. ✓ To control business
Demerit; central planning malpractices &
cannot be as efficient as the promote competition.
decentralized planning ✓ To stabilize the
achieved through the price economy against
system. The state cannot fix extreme fluctuations
the prices of millions of goods in income &
& services produced in an employment.
economy.