Significance of Business Economics in Decision Making

Significance of Business Economics in Decision Making

Significance of Business Economics

Significance of Economics indecision making can be classified into two parts-(I) Theoretical Significance of Economics, (II) Practical Significance of Economics.

I. Theoretical Significance of Economics

1. Understanding the functioning of the Economic System-

   The Study of Economics helps us to understand how the complicated economic system of today functions almost automatically without any central control. In all places we find people engaged in economic activities of different types. What are the purposes of these activities? Why the means of satisfaction are scarce? What are the principles that govern the economic activities? These are some of the important general problems of Lonomics. Study of this subject helps us to have a clear conception of the method of operation of the complex economic structure of the present day world.

2. Intellectual discipline-

   Economic reasoning trains our mind as reasoning does in other sciences. A study of the various economic theories and principles involves healthy mental exercise and promotes intelligence. Economics has been rightly termed as “the intellectual religion of the modern times.”.

No doubt Economics is no philosopher’s store to turn everything it touches into gold but it will help at least to distinguish gold from baser metals.

3. Welfare of the Masses-

   Economics is the only science that has direct and primary concern with welfare of masses. Economics theory explains the conditions of efficiency in consumption and production and highlights the factors which are responsible for the departure from the efficiency or economic optimum. On the basis of this, economic theory suggests suitable policies to promote economic efficiency and welfare of the people. Thus not only does economic theory describe the actual operation of the economy, it has also a normative role in that it suggests policies to eradicate inefficiency from the economic system so as to maximise the satisfaction of the people and thereby the welfare of them.

4. It provides Correct Judgement-

   As Keynes observes “Economics is a method rather than a doctrine, an apparatus of mind, a technique of thinking which helps its possessors to draw correct conclusions.” In this way, Economics teaches us to draw the correct conclusion from the experience of the past and to formulate proper economic policies and procedures for economic development.

5. Useful Citizen-

   A basic understanding of Economics is essential in order to be well informed citizen. Economics enables us to have a clear understanding of the various problems in agriculture, industry, business, banking, finance, etc. We can know and realise the significance of land ceiling, taxation of agriculture, agricultural pricing, co-operation and other economic measures adopted by the state. We can understand the recent economic policies like privatisation, liberalisation and globalisation etc. and can take active part in the implementation of these economic policies. Thus, economic training helps us to make disciplined and responsible citizens.

II. Practical Significance of Economics

The knowledge of economics has also a great practical value in life because economics is a science which is closely related to our life. The main point of practical uses are discussed below-

1. Consumer and families-

   To consumers and families, economics teaches how best to economise. It teaches them how they can have maximum of satisfaction with minimum of sacrifice. Thus, laws of consumption like law of Diminishing Marginal Utility; Law of Equi-marginal utility etc. explain the method of getting maximum satisfaction from a commodity.

Families learn from economics not only the virtues of saving, but advance knowledge of the economy of the country will help families in knowing the best way of investing the Savings. Family budgeting techniques which have been developed in economics, are of greatest help to consumers and families.

2. Producers-

   Like consumers, the study of economics is significant for producers in several ways-

• Economics teaches them how to combine various factors of production so as to achieve maximum economies in production.
• Producers learn from economics how to conduct market surveys to know the present and future trends in demand and cross elasticity of demand.
• Producers know from economics the virtues of division of labour, rationalisation and factor combination.
• Economics teaches them the economics of price determination, the economics of marketing and the economics of development.
• Economics also teaches them the methodology of Credit and Banking operations and project planning.
• Theory of distribution in economics suggests to the producer that every factor should be paid according to its marginal productivity.

3. Business Community-

   The study of economics is significant for Business Community specifically in modern times. A good knowledge of economic laws helps him to become an efficient and moderate entrepreneur. Economics teaches them the principles of creating customers. It also teaches them about the supply and demand elasticities and cross elasticities. The traders can learn from economics the principles of price fixation that will help them to earn maximum of profits.

4. Workers-

   Workers are also immensely benefitted by the study of economics. Study of economics provides them the knowledge as to how their efficiency can be raised or exploitation can be stopped. A labour leader who knows economics is able to fight for the rights of labour more effectively. Economics taught them the virtues of forming trade unions.

5. Social Reformers-

   The study of economics is also very useful for social reformers and workers. In underdeveloped countries like India people are mostly illiterate and traditional. Many of the social customs make them waste their money unnecessarily. The present religious setting makes them indolent. In fact the root of all social problems is in economics. In order to understand these problems properly, the study of economics is most essential. In the words of Dr. Marshall, ‘The main objective of economics is to find a solution to the social problems.”

6. Administrators-

   Fiscal and monetary policies are formulated by the administrators, so they must know the theories of taxation and finance. It will enable them to understand the sources of public revenue and debt.

Important links

• Business Economics- Meaning, Definition, Scope & Nature
• Role and Responsibilities of Business Economist
• Operation of Law of Diminishing Marginal Utility- Causes, Exception
• Strategic Management- Meaning, Concept & Objectives
• Features of Strategic Management- 8 Important Features
• Nature of Strategic Management & Its Importance
• Models of Strategic Decision Making
• Strategic Business Unit (SBU)- Success Factors, & Features etc.

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