Introduction to Business Economics

Historical Development of Business Economics

For much of the 20th century, if you had wanted to study business management, you probably would have enrolled in a course in economics. This was because of the prevailing wisdom at that time that businesses are run according to economic concepts and hence, any aspiring manager would have to study economics as a means of actualizing their aspirations. However, in the 1960s and 1970s, there was an emerging trend of offering business management programs by leading universities in the world as by then, the field of business management had spawned several sub disciplines like Marketing, HRM, Operations Management, and Finance. Indeed, it can be said that these sub-disciplines grew out of the basic economics courses that we mentioned earlier. In the current context, many aspiring managers study economics as a compulsory course in the first year of their b-school education, managerial economics, and business economics in other basic courses. Indeed, managerial economics and business economics are now taught in b-schools distinct from pure economics because the application of economics to business management is what these courses are all about. Whereas the basic economics course introduces the student to micro and macroeconomic concepts, managerial economics and business economics are geared towards equipping the student with the economic concepts necessary to run firms.

Key Themes in Business Economics

This module on business economics is organized around the four themes as described below:

  • How to get a firm started
  • How to keep the firm in business in the face of growing competitive rivalry
  • How to grow the firm into a much larger operation
  • And, How to Rejuvenate the firm in the face of declining demand

Considering the fact that there is a separate module on managerial economics, this module deals with the economic issues faced by the firms at a macro level instead of the micro decisions that are taken by managers. Further, given the fact that entrepreneurship is central to the setting up of new businesses, there is a need to discuss how entrepreneurs make economic decisions. The next aspect of business economics is how consumers make purchasing decisions. Indeed, the motivations and the decision making process that underlies consumer behavior is an aspect that can be studied through the lens of economics. The point here is that whereas marketing and other branches of management deal with these aspects according to behavioral and other theories, business economics focuses on how consumer behavior is influenced by economic aspects.

How Students and Professionals can Benefit from this Module

At the macro level, the firms must know how to survive and thrive in intense competition and hence the study of this decision making process helps us gain insights into how firms can earn more profits even during recessionary times. As mentioned in the bulleted point list, the key decisions confronting the firm right from inception to operation to growth is themes that business economics can explore and which are useful for entrepreneurs and business leaders. With increasing globalization, the fact that firms now operate in a global arena means that they must have the knowledge of how macroeconomic trends affect microeconomic decisions and hence, one of the topics that business economics studies is the interplay between international trade, exchange rates, and globalization. As students of management, many of you would have intimate knowledge of these aspects. However, for many professionals well into their careers, sometimes they would need to be refreshed about these concepts. Hence, this module is designed in a manner that would help students engage with the concepts and for professionals to get a primer of these concepts.

Closing Thoughts

Finally, the field of business economics owes a lot to the contributions of Alfred Marshall, Joseph Schumpeter, and Alfred Chandler. Hence, we would be covering their theories in detail in this module. With this brief overview, we welcome the readers to this module on business economics.


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Managerial Economics