Economics And Business Management - Business Economics, and Benefits
I searched and analyzed Google with an estimated guess; approximately 2 million people take economics as their major. Others might understand its concept through google or by reading a book, and some might not know it.
However, we all have those friends from science majors that excelled by changing their path with a successful business firm, making you believe that economics is not as necessary in business management as it is said to be. To change this belief, let me ask you a question, what will you do if, in one year, your business faces a long list of creditors, a wave of inflation, a worker's Strick and a sudden change in the state law, where you just finished up negotiating a deal.
Some of you might have an answer to this question some don't, but if everyone was aware of the concept of economics, and its importance in business management, then you might have the exact answer.
Overview of Economics
Economics is a science of society, concerned with the supply, demand of goods and services and their production, and distribution, according to the flow within the society. Every aspect improves the monetary flow and creates a necessary resource distribution, like different sectors of the society from the poor class to the rich class gets their basic necessity and a source of income that fulfils their needs.
This demand and supply of goods and services are also done to improve society's standard of living, create equality of income, and ensure the country's economic growth. Some factors that might influence the country's economics are households, government, the whole world, and businesses.
Demonetization, inflation, recession, household holding, increasing or decreasing population, globalization, business growth, and failure influence the economy.
Business Economics Definition
A branch of economics called business economics is the basic science of applying theoretical aspects of the economy to business and then determining a decision for business activities. Business economics' main purpose is to analyze the economy and help make the choice that led to profit maximization and attaining the business goal.
Scope of Business Economics
Business economics help determines and forecasts the future demand of the product, such as by analyzing the change in market trends and technology innovation through economics. Businesses can easily determine the demand for their product and its necessity in the market.
Businesses are unaware if they should invest more capital or wait for some time. Economics analyses help resolve this issue by determining if the business will benefit from its investment. Such as, at the time of expansion, analyzing the area of business, target market, and policy change will determine its success or failure.
The changing world and increasing uncertainty, demand a business for their profit management, and business economics makes it easy with the techniques such as Profit planning, and measurement of profit by Break-Even Point.
What is Business Management?
A business produces goods and services to sell them in the market, earn a profit, and satisfy the consumer. The coordination of all the activities performed in a business and implementing the ideology for business with strategic planning of future targets, execution, policies, process, and practice that will be applied is the business's management.Business management has various functions to direct its future changes and achieve its goal.
The first function is Organizingis related to identifying required resources and organizing them, such as raw material, machinery, and human resources. The second function is directing; it will depend on identifying the business goal and directing the workforce while motivating them with a goal or any other leadership style.
The third is planning; it requires a firm to identify all the future issues or changes that can impact the business and plan a course of action for protection, such as market competition changes in government policies. The fourth and fifth functions a staffing and controlling, which is related to human power and controlling the activities of a business through management.
Managerial Economics and its importance
Business managers and leaders use managerial economics for planning, problem-solving, determining their decisions, and applying the theories they learned of economics inside the organization. Their knowledge and studies of managerial economics and the theories of economics lead to organizational growth.
Managerial economics also deals with the internal issue of the organization and provides help in forecasting, investment, and business assumptions.
Importance of Managerial Economics in business management
It helps in the organization of business
Economics answers a business's essential questions, such as how much should be produced, who will be the product's target market, and how and where the production of goods should be done. A management organizing function needs economics to answer these questions as without them identifying the target market, their source of income and the necessity of product is not possible.
Also, the economy will determine in which part the production can be organized based on that area's government policies for labour and tax or interest rate on the other resources.
It is useful for future planning.
The planning function of business management also requires economics for analyzing the basic aspects of change that can impact the future functions of the business. While the business is planning for the expansion or launch of a new product or service, their planning needs the consideration of economic factors.
Economic changes in market shift, change in trends, policies or laws, or the issue of pandemic lockdown can impact the planning of the business.
Helpful in formatting policies for business
When a business firm is building policies, it needs to analyze all the changes in economic factors. Such as, if they are implementing policies of profit maximization through their sales, and the market has a competition for an alternative or similar product, then their policy is ineffective.
Helpful in effective Cost control and financial planning
Economic changes, such as demonetization, inflation, or government change, can impact the business's financial planning. It provides business management with a source to cost control, based on the economic analysis, and get an effective and running business even in hard circumstances.
Helps in coordinating business activities
The help of economics in analyzing future changes also provides the business management with a way to coordinate their activities according to the change. Such as, the pandemic of covid impacted the regular working process, and the analyses of government decision powers provided businesses with a forecasting help to coordinate their activities.
How Economics help in Business Management
Provides the overview of four p's of business
Economics helps identify and build the four p's of business management: people, price, product, and promotion. Economics determines the target market and what kind of people will buy the business's product. The product's price is also determined based on the economic condition of the target consumer and the country, such as if we sell a product of high price in a low-income area, it won't sell. The product strategy of where to produce and what should be produced also depends on the economic activity and promotion.
Provides direction for achieving set targets
Economics provides a piece of important information that is necessary for setting a goal for business growth. Such as, if a business has a target of expansion in Afghanistan, their strategy has already failed, as the country's government power domination has changed with the taking over of the Taliban.
If the business has already analyzed the vulnerable condition of the country through economic analyses, they might have chosen a different course of action.
It provides the basis for external and internal challenges.
The internal and external environment changes in also analyzed through economic analyses, and they are essential for business management. Such as identifying the change in political, cultural, social, or technological change, if a company is launching a product that is negatively affecting any gender or community, which already has a march in the society for their cause.
The company product will eventually fail. Economics helps in identifying those sources of change.
Crisis prevention and future planning are easy with economic management
It also helps business management prevent the business from any crisis that can happen in the future. Such economic analyses can determine the situations such as inflation and help the business change its financial strategy.
Benefits of studying Business Economics
It provides better growth opportunities.
When a person has learned about economics and its importance in business, they identify numerous opportunities for personal and professional growth. A business person with the knowledge of economics can identify the policy change and forecast it with their knowledge and experience.
Along with this, they rely not only on their financial advisor and analyst to provide them with the forecast but also on their understanding of the situation.
It provides knowledge of the international market.
Economic studies also provide insight into the international market, as a business person with economic knowledge can analyze the condition of other countries' economies, such as the reason behind the growing economy of China and the impact of Brexit on the UK's economy.
It inspires the success and growth of the business
Economic studies can also inspire business growth. If a person is aware of a country's economic condition and knows that the economy will improve, investing in that country will become the best option resulting in business growth.
Also, the economic analyses determine the change in government policies and changing market trends, which is valuable for identifying an opportunity to invest and grow. For example, suppose the government changes the policies and provides railways tender to a private company. In that case, it becomes an opportunity for the private companies to get that tender and grow.
It is considered a highly necessary skill in business
Economic study is essential to being a successful business person. It provides the knowledge of analyses and research, advanced numerical skills, problem-solving by looking into minor details, and the knowledge of the economic system and its cycle.
Business management can grow without the leader having the economic knowledge; however, their actions and decision-making will depend on the hired employees to analyze the economy. To become independent and sure in their decision making, every business manager and leader needs to have the necessary idea of economics.
Frequently Asked Question
Q1- What is the relationship between economics and business management?
The economic processes and examines the whole economy change and factors present in the world and society. Business management is only surrounded by the basic changes of business administration and the related aspects of its situated areas. To have the idea of a bigger picture and the business-related change around the world requires the help of identifying the economic factors and their change. It will not only help the business management to be effective but also help the business grow.
Q2-What is the importance of economics in decision-making?
Importance decisions related to business activities such as where to invest, what product to launch, and where the business start dissolution is dependent on the economy. Economics will identify major factors that can influence these decisions.
Such as, if the market in the future is going to get down due to changes in government, or their policies, then the decision of investing is highly affected. If the market condition and economic merge, such as Brexit, will influence its business factors, then the product launch and its target market change.
Q3- How is business economics different from economics?
Economics is related to the theoretical concepts of economy, such as micro changes within demand, supply, consumption, etc., and Marco changes, such as national income GDP. On the other hand, business economics is more practical and has a normative nature that depends only on the macro nature of economics.
Q4- What is the application of economics to business management?
The managerial economics concept is applied in business management to help the business management a marginal knowledge of economic changes and help their decision-making.