Nature of Business Economics; A Traditional economic theory has developed along two lines; viz., normative, and positive. Normative focuses on prescriptive statements and helps establish rules aimed at attaining the specified goals of the business. Positive, on the other hand, focuses on the description it aims at describing how the economic system operates without staffing how it should operate.
The emphasis in business economics is on normative theory. Business economic seeks to establish rules which help business firms attain their goals, which indeed is also the essence of the word normative. However, if the firms are to establish valid decision rules, they must thoroughly understand their environment [Hindi]. This requires the study of positive or descriptive theory. Thus, Business economics combines the essentials of the normative and positive economic theory, the emphasis being more on the former than the latter.
The following nature are below;
Some of the main characteristics of business economics are as follows:
Business economics is microeconomics in nature. This is due to the study of business economics mainly at the level of the firm. Generally, a business manager is concerned with the problems of his business unit. He does not study the economic problems of an economy as a whole.
Business economics largely uses the theory of markets and private enterprise. It uses the theory of the firm and resource allocation of the private enterprise economy.
Business economics is pragmatic in its approach. It does not involve itself with the theoretical controversies of economics. Yet it does not relegate the realities of business decision-making to the background by bringing in abstract assumptions. While economic theory abstracts from realities of the individual business units to build up its theories, managerial economics takes proper note of the particular economic environment in which a firm works.
Business economics is also called normative economics which prescribes standards or norms for policymaking. Business economics is prescriptive rather than descriptive. Economic theory, we try to explain economic behavior: Business economics, we try to prescribe policies for a business manager which are most likely applied to achieve his objectives. In economic theory, we build ‘laws’ such as the law of Demand and the Law of Diminishing Returns. In business economics, we apply these laws for policy planning at the level of a firm.
Macroeconomics which deals with the principles of economic behavior for the economy as a whole is also useful for business economics. A business unit operates within some economic environment which is in turn shaped by the behavior of the economy as a whole. Therefore, a business manager must know the external forces working in his business environment.
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