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What is Economics all about?

Any book of Economics starts with this Greek word "Oikonomia." This word actually explains the origin of Economics. "Oikos" is usually translated as "household" and "nemein" is ideally translated as "management." Thus we can translate the word "Oikonomia" as household management.

There are two fundamental facts in Economics.

  1. Human beings have unlimited wants; and

  2. The means to satisfy these unlimited wants are relatively scarce.

These two fundamental facts form the subject matter of Economics. Economics studies the processes by which relatively scarce are allocated efficiently to unlimited wants of human beings.

While allocating such relatively scarce resources one needs to make a decision. Decision making involves

  1. Evaluation of feasible alternatives;

  2. Rational judgement on the basis of information; and

  3. Choice of a particular alternative which is most suitable.

Note that the question of choice arises because resources are scarce and wants are unlimited. Therefore, more efficient alternatives must be chosen and less efficient alternatives must be rejected.

In businesses, decision making is not simple and straight forward as the economic environment is highly complex and dynamic. Many decisions have to be taken with uncertainty. Hence, management is required to be equipped with methodology, analytical tools and techniques provided by Business Economics.

Business Economics is also called as Managerial Economics because

  1. Theories of Economics provides tools which explains concepts and

  2. Business Economics applies these tools in process of management decision making.

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