Business Economics Summary
CHAPTER 1 SUMMARY- INTRODUCTION TO BUSINESS ECONOMICS
Economics can be defined as a discipline that studies the behaviour patterns of human beings. The
main aim of economics is to analyse how individuals, households, organisations, and nations
use their scarce resources to achieve maximum profit.
Economics is the study of how individuals, households, organisations, and nations make
optimum utilisation of scarce resources to satisfy their wants and needs.
Every economy has some root problems related with proper allocation and utilisation of
resources. Out of all these, three problems are basic and common which are faced by all the
economies around the globe. These problems are what to produce, how to produce and for
whom to produce.
There are three important assumptions in economics and these assumptions are, consumers
have rational preferences, existence of perfect competition and existence of equilibrium
There are two common approaches for economics namely positive and normative approach.
Under these approaches, the same topic can be expressed in two entirely different ways.
The laws and phenomena of economics are studied under two conditions, which are static and
dynamic.
Economic system refers to the system within a certain geographic area, society or an
economy, under which various economic activities such as production, resource allocation
and distribution and consumption of goods and services take place.
The scope of economics includes various fields, such as public finance, health, welfare,
environmental studies, and international arena.
Laws of economics are based on a set of generalisations assumed to govern an economic
activity. In economics, there are two basic laws which are law of demand and law of supply.
There are many important concepts such as national income, inflation, interest rate, business
cycles, etc. these laws are related to the economy as a whole and these concepts come under
macroeconomics.
National income can be defined as combined factor income arising from the current production
of goods and services in a country.
Inflation can be defined as the persistent increase in the price level of goods and services in an
economy over a period of time.
There are three types of inflation, namely moderate inflation, galloping inflation, and
hyperinflation
Interest rate can be defined as the proportion of a loan that is paid by the borrower as interest for
the use of money borrowed from a lender. In simple words, interest rate can be referred to as price
of money
The economic activities of a country include total output, income level, prices of products
and services, employment, and rate of consumption.
Circular flow of economy is also known as circular flow of economic activities and money. It
, can be defined as the continuous flow of goods, services, capital and labour resources within
the economy.
Business economics can be defined as an application of economic concepts, theories, and
tools for effective decision making in organisations.
The scope of business economics covers various areas, such as demand analysis and
forecasting, cost and benefit analysis, pricing decisions, and profit maximisation.
Business cycles can be described as change in business activities due to fluctuations in
economic activities over a period of time. It consists of four phases, namely expansion, peak,
contraction, and trough.
KEY WORDS
Capital abounded countries: Rich countries in which capital is available in surplus amount.
Capital intensive technique: A technique of production in which goods are produced
with the help of machines and robots.
Disequilibrium state of economy: The state of economy wherein market forces of supply and
demand do not reach a balance and there exist a strong possibility of change.
Foreign exchange: An international trading system, wherein local currencies are exchanged
with foreign currencies.
Labour abounded countries: Countries in which labour is available in a surplus amount
and there is some level of unemployment.
Labour intensive technique: A technique of production in which goods are produced
with the help of human labour.
Rate of consumption: The quantity of goods and services those are used by consumers over
a period of time and measurable.
Return on investment (ROI): A performance measure that helps in evaluating and
comparing the efficiency of an investment with other investments.
MCQ
1. Business economics can be taken as a part of macroeconomics. (True/False)
2. Which of the following is not an assumption of economics?
a. Consumers have rational preferences.
b. Existence of non-profitable competition
c. Existence of equilibrium
d. Existence of perfect competition
3. is that branch of economics which is objective and
descriptive in nature.
a. Positive approach
, b. Normative approach
c. Management approach
d. Business approach
4. Static economics is a study of factors that are not subject to change which is necessary for
equilibrium and it can be said that there is a state of equilibrium in static economics.
5. In case of market economy, class includes those people who sell their ability to work for
a certain amount of wages or salaries.
6. Under government is responsible for setting up of target
production and resource allocation or there is a necessary democratic ownership.
7. Which of the following does not comes under the scope of economics?
a. Environmental studies
b. Health
c. Social welfare
d. Archaeological survey
8. According to the law of customers buy a high quantity of products at lower prices
and vice versa.
9. Law of explains that there is positive relation between price and
quantity demanded.
10. is a branch of economics that deals with the study of economic behaviour of
individual organisations or consumers in an economy.
11. Which of the following is not included in the calculation of Gross Domestic Product
(GDP)?
a. Consumer goods and services
b. Gross private domestic income
c. Net factor income from abroad
d. Goods and services produced by the government
12. can be defined as the persistent increase in the price level of goods and services
in an economy over a period of time.
13. elaborates that how goods and services move from businesses to customers and
returns back to businesses.
14. can be defined as an application of economic concepts, theories and tools
for effective decision making in organisations.
, Answers-
1 FALSE 8 Demand
2 b. Existence of non-profitable competition. 9 Supply
3 a. Positive approach 10 Microeconomics
C. Net factor income from
4 Static economics 11 abroad
5 Working 12 Inflation
6 Planned economy 13 Circular flow of economy
7 d. Archaeological survey 14 Business economics
DESCRIPTIVE QUESTIONS
1. Describe the nature of economics?- Economics can be termed as a science as it defines the
relationship between cause and effect. Economics can also be considered as a social science
as well as an art. Refer to section 1.3 Meaning of Economics: Evolution of Subject
Economics.
2. Write a short note on economic dynamics.- Economic dynamics deals with the study of
changes in the economic system and how it adjusts to these changes over a period of time. Refer
to section 1.3 Meaning of Economics: Evolution of Subject Economics.
3. Explain the nature of economic laws- Economic laws are not exact in nature. Moreover they
are hypothetical and require certain conditions to be fulfilled to be true. Refer to section 1.4
Laws of Economics.
4. What is the difference between microeconomics and macroeconomics? Explain- Micro
economics deals with the study of economic behaviour of individual organisations or consumers
in an economy, whereas macroeconomics deals with the economic behaviour of various units
combined together. Refer to section 1.5 Microeconomics and Macroeconomics
5. Discuss the phases of business cycles? - A business cycles is comprised of mainly four phases,
namely expansion, peak, contraction, and trough. Refer to section 1.5 Microeconomics and
Macroeconomics
6. Discuss the types of inflation.-There are three types of inflation, namely moderate inflation,
galloping inflation, and hyperinflation. Refer to section 1.5 Microeconomics and
Macroeconomics.
7. Discuss the significance of business economics.- Business economics helps in making
effective decisions in organisations by helping the managers in identifying and analysing the
problems and finding solutions. Refer to section 1.6 Defining Business Economics.
CHAPTER 1 SUMMARY- INTRODUCTION TO BUSINESS ECONOMICS
Economics can be defined as a discipline that studies the behaviour patterns of human beings. The
main aim of economics is to analyse how individuals, households, organisations, and nations
use their scarce resources to achieve maximum profit.
Economics is the study of how individuals, households, organisations, and nations make
optimum utilisation of scarce resources to satisfy their wants and needs.
Every economy has some root problems related with proper allocation and utilisation of
resources. Out of all these, three problems are basic and common which are faced by all the
economies around the globe. These problems are what to produce, how to produce and for
whom to produce.
There are three important assumptions in economics and these assumptions are, consumers
have rational preferences, existence of perfect competition and existence of equilibrium
There are two common approaches for economics namely positive and normative approach.
Under these approaches, the same topic can be expressed in two entirely different ways.
The laws and phenomena of economics are studied under two conditions, which are static and
dynamic.
Economic system refers to the system within a certain geographic area, society or an
economy, under which various economic activities such as production, resource allocation
and distribution and consumption of goods and services take place.
The scope of economics includes various fields, such as public finance, health, welfare,
environmental studies, and international arena.
Laws of economics are based on a set of generalisations assumed to govern an economic
activity. In economics, there are two basic laws which are law of demand and law of supply.
There are many important concepts such as national income, inflation, interest rate, business
cycles, etc. these laws are related to the economy as a whole and these concepts come under
macroeconomics.
National income can be defined as combined factor income arising from the current production
of goods and services in a country.
Inflation can be defined as the persistent increase in the price level of goods and services in an
economy over a period of time.
There are three types of inflation, namely moderate inflation, galloping inflation, and
hyperinflation
Interest rate can be defined as the proportion of a loan that is paid by the borrower as interest for
the use of money borrowed from a lender. In simple words, interest rate can be referred to as price
of money
The economic activities of a country include total output, income level, prices of products
and services, employment, and rate of consumption.
Circular flow of economy is also known as circular flow of economic activities and money. It
, can be defined as the continuous flow of goods, services, capital and labour resources within
the economy.
Business economics can be defined as an application of economic concepts, theories, and
tools for effective decision making in organisations.
The scope of business economics covers various areas, such as demand analysis and
forecasting, cost and benefit analysis, pricing decisions, and profit maximisation.
Business cycles can be described as change in business activities due to fluctuations in
economic activities over a period of time. It consists of four phases, namely expansion, peak,
contraction, and trough.
KEY WORDS
Capital abounded countries: Rich countries in which capital is available in surplus amount.
Capital intensive technique: A technique of production in which goods are produced
with the help of machines and robots.
Disequilibrium state of economy: The state of economy wherein market forces of supply and
demand do not reach a balance and there exist a strong possibility of change.
Foreign exchange: An international trading system, wherein local currencies are exchanged
with foreign currencies.
Labour abounded countries: Countries in which labour is available in a surplus amount
and there is some level of unemployment.
Labour intensive technique: A technique of production in which goods are produced
with the help of human labour.
Rate of consumption: The quantity of goods and services those are used by consumers over
a period of time and measurable.
Return on investment (ROI): A performance measure that helps in evaluating and
comparing the efficiency of an investment with other investments.
MCQ
1. Business economics can be taken as a part of macroeconomics. (True/False)
2. Which of the following is not an assumption of economics?
a. Consumers have rational preferences.
b. Existence of non-profitable competition
c. Existence of equilibrium
d. Existence of perfect competition
3. is that branch of economics which is objective and
descriptive in nature.
a. Positive approach
, b. Normative approach
c. Management approach
d. Business approach
4. Static economics is a study of factors that are not subject to change which is necessary for
equilibrium and it can be said that there is a state of equilibrium in static economics.
5. In case of market economy, class includes those people who sell their ability to work for
a certain amount of wages or salaries.
6. Under government is responsible for setting up of target
production and resource allocation or there is a necessary democratic ownership.
7. Which of the following does not comes under the scope of economics?
a. Environmental studies
b. Health
c. Social welfare
d. Archaeological survey
8. According to the law of customers buy a high quantity of products at lower prices
and vice versa.
9. Law of explains that there is positive relation between price and
quantity demanded.
10. is a branch of economics that deals with the study of economic behaviour of
individual organisations or consumers in an economy.
11. Which of the following is not included in the calculation of Gross Domestic Product
(GDP)?
a. Consumer goods and services
b. Gross private domestic income
c. Net factor income from abroad
d. Goods and services produced by the government
12. can be defined as the persistent increase in the price level of goods and services
in an economy over a period of time.
13. elaborates that how goods and services move from businesses to customers and
returns back to businesses.
14. can be defined as an application of economic concepts, theories and tools
for effective decision making in organisations.
, Answers-
1 FALSE 8 Demand
2 b. Existence of non-profitable competition. 9 Supply
3 a. Positive approach 10 Microeconomics
C. Net factor income from
4 Static economics 11 abroad
5 Working 12 Inflation
6 Planned economy 13 Circular flow of economy
7 d. Archaeological survey 14 Business economics
DESCRIPTIVE QUESTIONS
1. Describe the nature of economics?- Economics can be termed as a science as it defines the
relationship between cause and effect. Economics can also be considered as a social science
as well as an art. Refer to section 1.3 Meaning of Economics: Evolution of Subject
Economics.
2. Write a short note on economic dynamics.- Economic dynamics deals with the study of
changes in the economic system and how it adjusts to these changes over a period of time. Refer
to section 1.3 Meaning of Economics: Evolution of Subject Economics.
3. Explain the nature of economic laws- Economic laws are not exact in nature. Moreover they
are hypothetical and require certain conditions to be fulfilled to be true. Refer to section 1.4
Laws of Economics.
4. What is the difference between microeconomics and macroeconomics? Explain- Micro
economics deals with the study of economic behaviour of individual organisations or consumers
in an economy, whereas macroeconomics deals with the economic behaviour of various units
combined together. Refer to section 1.5 Microeconomics and Macroeconomics
5. Discuss the phases of business cycles? - A business cycles is comprised of mainly four phases,
namely expansion, peak, contraction, and trough. Refer to section 1.5 Microeconomics and
Macroeconomics
6. Discuss the types of inflation.-There are three types of inflation, namely moderate inflation,
galloping inflation, and hyperinflation. Refer to section 1.5 Microeconomics and
Macroeconomics.
7. Discuss the significance of business economics.- Business economics helps in making
effective decisions in organisations by helping the managers in identifying and analysing the
problems and finding solutions. Refer to section 1.6 Defining Business Economics.
