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CA Foundation · Business Economics · Nature and Scope of Business Economics

Business Economics is often described as a bridge between economic theory and business practice. Which of the following best justifies this description?

The bridge description is justified because Business Economics selects relevant tools of economic analysis and applies them to practical problems of a firm. It converts abstract concepts like demand and cost into usable decision aids. It is neither pure theory nor mere accounting nor only macroeconomic aggregates.

  1. AIt develops pure economic theories without reference to actual business problems
  2. BIt deals only with the accounting treatment of costs and revenues
  3. CIt selects relevant tools of economic analysis and applies them to practical problems faced by a firmCorrect
  4. DIt studies only the aggregate behaviour of the national economy

Explanation

The 'bridge' description means that Business Economics takes concepts from theory, such as demand, cost and market structure, and applies them to real firm-level decisions. Pure theory building and national aggregates are matters for general economics, and accounting treatment is not its focus.

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