Business Economics


We here every day a number of people make their own decisions. Some are made by us as a person, individual, or entrepreneur. Almost all the decisions made by anyone in the country directly or indirectly takes us to relate economic variables like demand, supply, inventory, price, input, output, profit, loss, financial statements, appropriations, etc.

The main work of business economics is to provide solutions to every problem faced by any business entity. It provides spare tools of analytics and a technique of thinking for business organizations, nurturing the conceptual and technical skills of managers facing decision problems. It is that part of economics which links abstract theories and business practice by identifying problems, evaluating information of all feasibility to choose the best reform.

Outline of Indian Economy:-


*Mixed economy

Existence of both public and private sectors. This term was coined by JM Keynes

*Agrarian economy

Even after six decades of independence 58% of the workforce of India is still agriculturist and its contrite GNP 2015-2016


  • i)slow and steady growth of national and per capita income
  • ii)capital deficiencies and low rate of capital formation, hence the low rate of investment, low manufacturing, etc; poor quality of human capital
  • iii)mass poverty, chronic inflammation, and chronic unemployment
  • iv)gender inequality, unequal distribution of income and wealth
  • v)heavy population pressures
  • vi)over-dependent on agriculture facilities

Following are the nature and uses of business economics:-

All human activities are divided into two categories i.e economic and noneconomic

Economic activities are concerned with production wealth. Every human being takes any kind of work to earn money and have a healthy life living. All these activities create satisfaction.

Non-economic activities are not taken for economic motives, these may be in the form of religious, cultural, traditional, or social activities.

The term of earning profit is deducted from noneconomic activities.

Uses of Business Economics:-

  • 1)Activities related to the distribution of goods and services
  • 2)Activities related to the exchange of goods
  • 3)Activities related to distribution and exchange
  • 4)Activities related to business operations

Activities are related to the distribution of goods and services:-

In the business economic sector, the goods are produced in the production houses to satisfy the needs of consumers. The goods are produced in the manufacturing industry and then sent to the place of consumption. All those activities which facilitate this process of transfer are a part of commerce.

Activities are related to the exchange of good:-

Business economics is concerned with the exchange of goods and services. It refers to all those minor and major activities and effects which bring buyers and sellers together at one place to carry on with trade practices. The producers and consumers are brought together. Commerce looks at the removal of hurdles and various obstacles in the flow of goods snd services between producers and consumers

Activities are related to distribution and exchange:-

Business economics is used in the study of activities related to both distribution and exchange. There are surplus goods that can be exchanged. The goods should reach the final destination till the final consumption takes place. As per the consumer’s needs, the production should take place by seeing the quality and quality of the product which has to satisfy the needs of consumers.

Activities are related to business operations:-

It is the study of business and its operations.

The whole field of commerce and industry takes part in business operations. From the time of production, manufacturing, insurance, banking, distribution, transport all come together and takes the initiative to operate the business

Nature of business economics:-

In a traditional way, commerce is related to trading. Commerce on the other hand is a part of business associations. Taking different views into account, commerce has the following characteristics

  • ☆Exchange of goods and services
  • ☆Profit-making
  • ☆Risk factor
  • ☆Creating satisfaction

Exchange of goods and services:-

Commerce undertakes the exchange of goods and services with consideration. The exchange of goods and services is done for profit-making. The selling scale from the production house to wholesalers then wholesalers sells to retailers comes under trade concept in commerce while purchasing from retailers the consumer gets involved so according to commerce where the consumer comes in the chain it is not called trade practices.


All activities in business or commercial activities are a part of the business. Any activity or action taken against for non-profit motive will not be held in commercial activities. The main objective of every businessman is to make a profit from the starting point of the business itself.

Risk factor:-

Risk implies uncertainty or the possibility of loss. The element of risk is involved in all economic activities but it is slightly high in commercial activities. There may be a shift in demand and supply, floods, war, riots, unexpected fall in prices, fluctuation in the money market, increase in competition

Creating satisfaction:-

Commerce creates a place and time utility in goods. The goods produced at a place are taken all over the country where ever there is a demand for it. Commerce helps in delivering these goods from where it is produced to the consumption point. Time utility helps in maintaining the proper prices of goods.

Utility and satisfaction:-

The primary focus of utility analysis is on the satisfaction of wants and willingness to pay and needs to be obtained by the consumption of goods. This termed is known as a utility. In a common word, the term utility means “usefulness”

E.g; A knife gives different utility to a housewife cutting vegetables to prepare her meal and the difference lacks with the murderer who uses the knife for a different purpose

The use of an umbrella gives different satisfaction in the rainy season it creates time utility.

Sometimes the goods consumed may not give satisfaction to the person but it is useful in the everyday sense of the term.

E.g; Giving injection to the patient gives another satisfaction to him/her when they need it and when they don’t need it gives different pleasure or we can say utility to the person

There are two types of utility:-

  • 1) Total utility
  • 2) Marginal utility

Total utility:-

Utility analysis begins with the total utility derived from the consumption of different quantities of a good. It is often convenient to present total utility for a range of quantities shown in the following table

Total utility


The motivation that guides Mr. A. Is t maximize utility. As the increase in consumption, the utility gets higher

Marginal utility:-

As we see above total utility is used from the starting point of consumption to analyze the utility derived. Marginal utility is in other words the extra satisfaction derived or gained from an extra unit of good consumed

Marginal utility is specified as:-

Marginal =Change inChange in
UtilityTotal Quantity

If for example, the total utility increases from 20 to 27 unit the marginal utility are 7 units

Marginal Utility

RidesTotal Utility Marginal Utility

The marginal utility provides a direct link between utility analysis and demand. The demand price a buyer is willing to pay for a given good is based on the marginal utility derived from the consumption of goods taken place.

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