Nature and Scope of Economics

 

NATURE OF ECONOMICS

 

Under this, we generally discuss whether Economics is science or art or both and if it is a science whether it is a positive science or a normative science or both.

Economics – As a science and as an art: Often a question arises – whether Economics is a science or an art or both.

 (a) Economics is a science: A subject is considered science if It is a systematised body of knowledge which studies the relationship between cause and effect.

It is capable of measurement.

It has its own methodological apparatus.

It should have the ability to forecast.

 

If we analyse Economics, we find that it has all the features of science. Like science it studies cause and effect relationship between economic phenomena. To understand, let us take the law of demand. It explains the cause and effect relationship between price and demand for a commodity. It says, given other things constant, as price rises, the demand for a commodity falls and vice versa. Here the cause is price and the effect is fall in quantity demanded. Similarly like science it is capable of being measured, the measurement is in terms of money. It has its own methodology of study (induction and deduction) and it forecasts the future market condition with the help of various statistical and non-statistical tools.

But it is to be noted that Economics is not a perfect science. This is because Economists do not have uniform opinion about a particular event. The subject matter of Economics is the economic behaviour of man which is highly unpredictable.

Money which is used to measure outcomes in Economics is itself a dependent variable.

It is not possible to make correct predictions about the behaviour of economic variables.

 

(b) Economics is an art: Art is nothing but practice of knowledge. Whereas science teaches us to know art teaches us to do. Unlike science which is theoretical, art is practical. If we analyse Economics, we find that it has the features of an art also. Its various branches, consumption, production, public finance, etc. provide practical solutions to various economic problems. It helps in solving various economic problems which we face in our day-to-day life.

Thus, Economics is both a science and an art. It is science in its methodology and art in its application. Study of unemployment problem is science but framing suitable policies for reducing the extent of unemployment is an art.

 

 

we can examine the scope of business economics.

 

1. Demand analysis and forecasting.

                                                               The foremost aspect regarding scope is demand analysis and forecasting. A business firm is an economic unit which transforms productive resources into saleable goods. Since all output is meant to be sold, accurate estimates of demand help a firm in minimising its costs of production and storage. A firm must decide its total output before preparing its production schedule and deciding on the resources to be employed. Demand forecasts serves as a guide to the management for maintaining its market share in competition with its rivals, thereby securing its profit.

 

2. Cost and production analysis.

                                                          A firm’s profitability depends much on its costs of production. A wise manager would prepare cost estimates of a range of output, identify the factors causing variations in costs and choose the cost-minimising output level, taking also into consideration the degree of uncertainty in production and cost calculations. Production process are under the charge of engineers but the business manager works to carry out the production function analysis in order to avoid wastages of materials and time. Sound pricing policies depend much on cost control. The main topics discussed under cost and production analysis are: Cost concepts, cost-output relationships, Economies and Diseconomies of scale and cost control.

 

3. Pricing decisions, policies and practices.

                                                                           Another task before a business manager is the pricing of a product. Since a firm’s income and profit depend mainly on the price decision, the pricing policies and all such decisions are to be taken after careful analysis of the nature of the market in which the firm operates. The important topics covered in this field of study are : Market Structure Analysis, Pricing Practices and Price Forecasting.

 

4. Profit management.

                                         Each and every business firms are tended for earning profit, it is profit which provides the chief measure of success of a firm in the long period. Economists tells us that profits are the reward for uncertainity bearing and risk taking. A successful business manager is one who can form more or less correct estimates of costs and revenues at different levels of output. The more successful a manager is in reducing uncertainity, the higher are the profits earned by him. It is therefore, profit-planning and profit measurement constitute the most challenging area of business economics.

 

5. Capital management.

Still another most challenging problem for a modern business manager is of planning capital investment. Investments are made in the plant and machinery and buildings which are very high. Therefore, capital management requires top- level decisions. It means capital management i.e., planning and control of capital expenditure. It deals with Cost of capital, Rate of Return and Selection of projects.

 

6. Inventory management:

                                               A firm should always keep an ideal quantity of stock. If the stock is too much, the capital is unnecessarily locked up in inventories At the same time if the level of inventory is low, production will be interrupted due to non-availability of materials. Hence, a firm always prefers to have an optimum quantity of stock. Therefore, managerial economics will use some methods such as ABC analysis, inventory models with a view to minimising the inventory cost.

 

7. Linear programming and theory of games :

                                                                                 Linear programming and theory of games have came to be regarded as part of managerial economics recently.

 

8. Environmental issues:

        There are certain issues of macroeconomics which also form a part of managerial economics. These issues relate to general business, social and political environment in which a business enterprise operates.

 

9. Business cycles:

         Business cycles affect business decisions. They refer to regular fluctuations in economic activities in the country. The different phases of business cycle are depression, recovery, prosperity, boom and recession. Thus, managerial economics comprises both micro and macro-economic theories. The subject matter of managerial economics consists of all those economic concepts, theories and tools of analysis which can be used to analyse the business environment and to find out solution to practical business problems.

 

 

 

 

 

References

http://www.newagepublishers.com/samplechapter/001970.pdf

http://wiki.answers.com/Q/Explain_the_nature_and_scope_of_economics_with_and_example

www.slideshare.net/ArihantJain21/nature-and-scope-of-economics

http://www.ddegjust.ac.in/studymaterial/bba/bba-103.pdf

http://i2biz.blogspot.in/2010/10/nature-and-scope-of-economics.html

http://tnau.ac.in/eagri/eagri50/AECO141/lec01.pdf

 

 

 

we can examine the scope of business economics.

 

1. Demand analysis and forecasting.

                                                               The foremost aspect regarding scope is demand

analysis and forecasting. A business firm is an economic unit which transforms

productive resources into saleable goods. Since all output is meant to be sold, accurate

estimates of demand help a firm in minimising its costs of production and storage. A firm

must decide its total output before preparing its production schedule and deciding on the

resources to be employed. Demand forecasts serves as a guide to the management for

maintaining its market share in competition with its rivals, thereby securing its profit.

 

2. Cost and production analysis.

                                                          A firm’s profitability depends much on its costs of

production. A wise manager would prepare cost estimates of a range of output, identify

the factors causing variations in costs and choose the cost-minimising output level, taking

also into consideration the degree of uncertainty in production and cost calculations.

Production process are under the charge of engineers but the business manager works to

carry out the production function analysis in order to avoid wastages of materials and

time. Sound pricing policies depend much on cost control. The main topics discussed

under cost and production analysis are: Cost concepts, cost-output relationships,

Economies and Diseconomies of scale and cost control.

 

3. Pricing decisions, policies and practices.

                                                                           Another task before a business manager is

the pricing of a product. Since a firm’s income and profit depend mainly on the price

decision, the pricing policies and all such decisions are to be taken after careful analysis

of the nature of the market in which the firm operates. The important topics covered in

this field of study are : Market Structure Analysis, Pricing Practices and Price Forecasting.

 

4. Profit management.

                                         Each and every business firms are tended for earning profit, it is

profit which provides the chief measure of success of a firm in the long period.

Economists tells us that profits are the reward for uncertainity bearing and risk taking. A

successful business manager is one who can form more or less correct estimates of costs

and revenues at different levels of output. The more successful a manager is in reducing

uncertainity, the higher are the profits earned by him. It is therefore, profit-planning and

profit measurement constitute the most challenging area of business economics.

 

5. Capital management.

                                          Still another most challenging problem for a modern business

manager is of planning capital investment. Investments are made in the plant and

machinery and buildings which are very high. Therefore, capital management requires

top- level decisions. It means capital management i.e., planning and control of capital

expenditure. It deals with Cost of capital, Rate of Return and Selection of projects.

 

6. Inventory management:

                                               A firm should always keep an ideal quantity of stock. If the

stock is too much, the capital is unnecessarily locked up in inventories At the same time

if the level of inventory is low, production will be interrupted due to non-availability of

materials. Hence, a firm always prefers to have an optimum quantity of stock. Therefore,

managerial economics will use some methods such as ABC analysis, inventory models

with a view to minimising the inventory cost.

 

7. Linear programming and theory of games :

                                                                                 Linear programming and theory of

games have came to be regarded as part of managerial economics recently.

 

8. Environmental issues:

        There are certain issues of macroeconomics which also form a

part of managerial economics. These issues relate to general business, social and political

environment in which a business enterprise operates.

 

9. Business cycles:

         Business cycles affect business decisions. They refer to regular

fluctuations in economic activities in the country. The different phases of business cycle

are depression, recovery, prosperity, boom and recession.

Thus, managerial economics comprises both micro and macro-economic theories.

The subject matter of managerial economics consists of all those economic concepts,

theories and tools of analysis which can be used to analyse the business environment and

to find out solution to practical business problems.

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