FYBCOM Business Economics | Subject matter of macroeconomics | Importance of Macroeconomics

FYBCOM Business Economics

What is business economics? Discuss Scope of business economics

Business Economics:

  1. Business economics is a branch of economics that deals with issues like business firms, management, expansion, and strategy.
  2. The primary focus of business economics is a business enterprise or a firm.
  3. Business enterprises are units of production of goods and services whose primary objective is to produce for the market in order to earn profits.


The scope of business economics

  1. Market demand and supply: The study of market demand and supply help the procedure to determine the price of goods and services, so it’s a very important area of study in business economics.
  2. Production Analysis: It analysis the production process. A business organization tries to make optimum use of available resources to maximize production( Output) and minimize the cost.
  3. Cost and profit analysis: The cost function is used to make a decision regarding the optimum utilization of resources. Business economics used concepts of opportunity cost and implicit cost to determine economic profits.
  4. Market Structure: The study of market structure is a very important part of business economics. It studies market structures like Perfect Competition, monopoly, Monopolistic competition, etc.
  5. Pricing: Pricing is one of the most important business decisions that determine a firm’s revenue (income) and profit.
  6. The objective of the firm: The main objective of every business organization to earn maximum profits. And secondary objective to satisfaction level and maximize sales.

Subject Matter and Importance of Macroeconomics

Scope and Subject matter of macroeconomics

  1. Determination National Income: Macroeconomic refers to the theory of Income and Employment because it explains or determines the level of national income and employment in a country and analyses the reasons for changes in the level of income, output, and employment. The study of macro-economic tells the overall view of the economy. It objectives to provide an overall view of the economy, that helps in policymaking and implementation.
  2. General price level and Inflation: The macro-Economic analysis determines the general price level and explains the causes of fluctuations in the general price level. The study of the general level of prices is vital to determine national income. The problem of inflation and depression are serious problems in the world these days. The theory of price level studies the causes and effects of inflation and depression and suggests economic policies to overcome and control these problems.
  3. Economic Growth and Development: The theory of economic growth and development is another important subject matter of Macroeconomics. It analyzes the causes of underdevelopment and poverty and suggests the best policies for growth and development. It also deals with the issues of the optimum utilization of resources to increase production capacity. It explains how the higher rate of growth with stability, can be achieved in countries.
  4. Macro Theory of Distribution: It helps in determining factor rewards like rate of interest, wages, etc. of the national income of the various classes. It deals with the factor payment like rent, wages, interest, and profits in the total national income.
  5. Aggregate demand and Aggregate Supply: Aggregate demand means total demand for various kinds of goods and services by all types of buyers in an economy at different prices during a given period of time. Aggregate demand is calculating the aggregate expenditure of the economy. So aggregate demand is the total expenditure of household on consumption (C)+ expenditure of firm on investment (I) + Government expenditure (G)+ and the net difference between export and import (X-M). Aggregate supply means total goods and services produced and supplied in an economy during a given period of time. The producer uses the factor of production in return they have to make factor payments in the form of rent, wages, interest, and profit.
  6. Employment and unemployment:  The theory of employment is also an important aspect of macroeconomic theory. It studies the various factors responsible for employment, and unemployment. Therefore, the employment theory can help the government to take corrective measures to control the unemployment problem in the country.
  7. Balance of payment and Exchange Rate: Macroeconomics explains the factors that determine a country’s balance of payments and identified the causes of deficits balance. It suggests policy for corrective measures for deficits balance. The exchange rate is one of the determinants of the balance of payments. The central bank plays a vital role in managing exchange rates.

This is a subject matter of macroeconomics./ Importance of Macroeconomics

  1. Functioning of an Economy: Macroeconomic analysis helps us to understand the behavior pattern of aggregative variables in a large and complex economic system. It gives us an idea of the functioning of an economic system.
  2. Economic Fluctuations: It helps to analyze the causes of fluctuations in income, output, and employment and makes an effort to control them or reduce their severity.
  3. National Income: Study of macroeconomics helps in determining the national income of the country and social accounts. Without a study of national income, it’s not possible to formulate correct economic policies.
  4. Economic Development: Advanced studies in macroeconomics help to understand the issues of developing countries like poverty, inequalities of income and wealth, differences within the standards of living of the people. It suggests important steps to achieve economic development.
  5. Performance of an Economy: Macroeconomics helps us to analyze the performance of an economy. It helps in measuring the performance of an economy over time by comparing the production of goods and services in one period with another period.
  6. Study of Macroeconomic Variables: The study of macroeconomic variables is important to understand the working of the economy. Main economic problems are related to the economic variables such as the behavior of total income, output, employment, and general price level in the economy.
  7. Level of Employment: Macroeconomics helps to research the overall level of employment and output in an economy.

FYBCOM Business Economics Important questions Click HERE

Reference: IDOL, Manan Prakashan

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