Business Economics Research Paper 2022

Running head: BUSINESS ECONOMICS
BUSINESS ECONOMICS
Name of the student
Name of the university
Author’s note

BUSINESS ECONOMICS1
Introduction
Economics and business economics are interrelated to each other. The paper will study
how different variables such as micro and macroeconomic of economics impacts the business
environment. The study of economics is based on the fundamental problem concerning the
scarcity of resources. The business entities produce goods with the help of these scarce
resources. Thus it needs effective management and strategic decision. The understanding and
complete knowledge of the economic system and its types helps a manager to take his business
decisions that can be successful in the particular economic system. Every decision making is
based on the theories of demand and supply functions. The firm foresees future demand and
produces accordingly. The producers don’t produce when the demand has been created in the
market; rather, they predict these demands for carrying production function. There are different
market structures which need different types of decision making from the managers. The pricing
decisions and the production decisions are based on the characteristics which these market
structures show.
Discussion
Economics and its relation to the business environment
Economics is a subject that studies the production, distribution and consumptions of
goods and services. It involves decisions concerning what to produce, how to produce, and when
to produce. The study of economics helps the managers of the business to take decisions
concerning the production as per the market demand in the economy. There are several factors
present in the economy that affects a business decision, and those are microeconomic factors and
microeconomic factors. Microeconomic factors consist of those factors which can directly
impact the business operation while macroeconomic factors consist of different factors which

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impact the business operations indirectly (Janssen et al. 2017). The individual demand for a
business product and individual supply concerning it are examples of the microeconomic
variable. In contrast, the aggregate demand and the aggregate supply of the whole economy of a
nation are the macroeconomic factors. The businesses find it easy to produce in the influence of
microeconomic variables as these are considered controllable by the managers. In contrast,
businesses find it difficult to control macroeconomic factors (Jalal 2018).
Economic problem and factors of production
The economic problem which exists in society and defines the base of the economic
study is the limited resources available and how to utilize these scares resources to meet the
demands of the consumers with the fact that the human wants and needs are unlimited. The
resources are limited means the natural resources like land, which is limited in its quantity.
Secondly, the resources which have limited use like machinery (Sproten et al. 2018). The
resources are broadly divided into four categories such as land, entrepreneurship, capital and
labour. Land involves human resources that are important for the production process. Capital
resources are the equipment and tools on which a company invest to start the production process.
The entrepreneurship shows the expertise and innovations, which is the base of the production.
The entrepreneurs have a great role in analyzing future demand and look into the opportunity for
producing goods and services to earn the profit (Prajogo 2016).
Firm behaviour and managerial decision making
The success of any business depends on the way the business approach towards the
internal and external business environment. It defines the behaviour of the business that how it
performs in the presence of uncertain macroeconomic factors. The macroeconomic environment
consists of a different environment such as economic environment, political environment, legal

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environment and the social environment. The economic factors consist of a change in currency
rates, inflation rate etc. the political factors consist of different schemes and programs of the
current government. The stability of the political system of a country is very important for
conducting business smoothly (Newman et al. 2020). The legal factors include the rules and
regulations imposed by the government. The business standards and laws create the legal
environment for the business. The social factors include the culture, religions and different
resources such as water, air and land. The business exists in between all these factors. The
managers need to foresee the future challenges imposed by these external environments
(Veselovsky et al. 2017).
The economic system and its types
Businesses operate in a different economic environment. Economic of one country may
differ from the other country. There are four types of economic systems such as traditional
system, command economy, market economy and the mixed economy. The traditional economy
depends on the production, which is done traditionally not using so advanced technology. The
features of this economy do not match with others. It tries to retain its culture and custom in it.
The command economy has a centralized control system. The decisions of managers are not as
independent as it is controlled by government decisions (Ajayi 2016). The prices of goods and
services are favourable. The main aim of the command economy is to use its resources
sustainably and protect it for future growth too. The managerial decisions are influenced by these
features and contain social objectives in their business motive. The market economy is a free
market where the managers are independent of taking their decisions. The decisions are based on
the demand and supply functions. Consumption and production function of the economy
(Rajagopal, Venkatesan and Goh 2017). The market decides what quantity of goods and services