Meaning and Definition of Business Economics

Every business — a corner shop, a manufacturing firm, or a large company — has to keep answering the same hard question: how to make the best use of limited resources (money, materials, labour, time) to earn the highest possible return. Business Economics (also called Managerial Economics) is the branch of study that helps answer exactly this. It takes the established principles of economic theory and applies them, in a practical way, to the real decisions a business manager has to make.

Put simply, Business Economics is the application of economic theory and analytical tools to the problems of business decision-making and forward planning. It sits at the meeting point of two disciplines — pure economics (which explains how people and firms use scarce resources) and business management (which is concerned with actually running a firm profitably). Business Economics borrows the reasoning of economics and puts it to work on practical management problems such as what to produce, how much to produce, what price to charge, and how to keep costs down.

Several writers have defined it in slightly different words, but the core idea is common to all of them:

• A widely used definition describes Business (Managerial) Economics as "economics applied in decision-making — a special branch of economics bridging the gap between abstract economic theory and managerial practice."
• Another common definition calls it "the integration of economic theory with business practice for the purpose of facilitating decision-making and forward planning by management."

The key words in every definition are the same: economic theory, decision-making, and forward planning. Business Economics does not create brand-new economic theory; instead, it selects the parts of economic theory that are useful to a manager and applies them to concrete business situations.

This subject draws on the same well-established microeconomic principles — demand, cost, production, market structure, and pricing — that any standard economics course covers; the difference is only in emphasis, since Business Economics is deliberately practical and decision-oriented rather than purely theoretical.