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MEANING OF ECONOMICS
Economics is defined by taking four viewpoints, which are explained as follows:
Wealth Viewpoint: Represents the classical perspective of economics. According to Adam Smith, economics is a science of wealth. He is regarded as the father of economics. Welfare Viewpoint: Represents a neo-classical standpoint of economics. Alfred Marshall, a neo-classical economist, associated the term economics with man and his welfare. Scarcity Viewpoint: Refers to the pre-Keynesian thought of economics. Lionel Robbins defined economics as a science of scarcity or choice. Growth Viewpoint: Indicates the modern perspective of economics. Paul Samuelson outlined three main aspects, namely human behavior, allocation of resources, and alternative uses of resources.
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NATURE OF ECONOMICS
Economics as a Science: Refers to the scientific nature of economics. Some economists believed that in economics, a problem is solved by adopting a scientific approach, which involves collecting and analyzing data and making related laws and theories. Economics as a Social Science: Implies that economics is a study of behavior patterns of human beings. The basic function of economics is to study how individuals, households, organizations, and nations utilize their limited resources to achieve maximum profit. Therefore, it can be said that economics is a social science.
BRANCHES OF ECONOMICS
Microeconomics: Refers to a branch of economics that examines the performance and behavior of individual organizations and consumers in an economy. It involves the study of supply and demand patterns and price and output determination of individual markets. Macroeconomics: Refers to a branch of economics that studies the performance and behavior of the whole economy. It undertakes the study of economic aggregates, such as changes in employment, national income, rate of growth, Gross Domestic Product (GDP), inflation, and price levels.
Managerial economics is concerned with the application of economic concepts and economics to the problems of formulating rational decision making. --- Mansfield
Managerial economics is concerned with the application of economic principles and methodologies to the decisionmaking process within the firm or organization. It seeks to establish rules and principles to facilitate the attainment of the desired economic goals of management. --- Douglas
APPLICATION OF MICROECONOMICS
Demand Theory
Refers to a theory that is applied to understand the buying behavior of consumers.
Production Theory
Refers to the theory that explains the relationship between input and output.
Price Theory
Involves determining the price of a product or services under different market conditions.
Profit Theory
Helps organizations to measure the return on capital and total profit.
Capital Theory
Enables managers to make capital and investment decisions, which determine the success of an organization.
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APPLICATION OF MACROECONOMICS
The macroeconomic theory deals with issues related to the general business environment in which an organization operates. The environmental issues can be associated with the economic, political, and social environment of a country. The economic environment of a country includes economic system, national income, employment, population, saving, investment, financial sector, foreign trade, and poli8tical system of a country. Macroeconomics helps in the study of all the factors comprises the economic environment of a country.
2012, Dreamtech Press :: Chapter 1
It is a traditional and well-established discipline. It is an extremely theoretical subject. Economics is a positive as well as normative science.
It deals with the theories of distribution, such as It deals with theories that help rent, interest, wages, and profit. organizations in maximizing profits.
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Statistics
An organization uses various statistical tools to collect and analyze business data as well as to check the validity of the data before it is applied to business analysis.
Operational Research
Makes use of different economic concepts, mathematical techniques, and statistical tools to build models for solving various business problems.
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For whom to produce: Refer s to a problem related to the distribution of products and ser vices among the dif ferent sector s of the economy.
Economical u se of resources: Refers to a problem of making optimum use of limited resources so that the wants of human beings can be satisfied. Problem related to g rowth: Refer s to the problem related to the continuous development of the economy.
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RECAP
Economics studies how individuals, households, organizations, and nations utilize their limited resources to achieve maximum profit. Economics is divided into two parts, namely microeconomics and macroeconomics. Managerial economics is an applied branch of economics that deals with economic concepts and tools used in business decision making. Managerial economics deals with the analysis of economic theories and laws to solve business problems and take decisions based on rational thinking. These business problems can be related to demand and supply prospects of an organization, level of production, pricing, market structure, and extent of competition.
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