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

Consider these statements about the scope of Business Economics. I. Capital management, involving planning and control of capital expenditure, is part of its scope. II. It deals only with the internal problems of a firm and ignores the external business environment. III. Demand analysis and forecasting help a firm in production planning and inventory control. Which statements are correct?

Statements I and III are correct. Capital management and demand forecasting are recognised areas of Business Economics. Statement II is wrong because the discipline also studies the external business environment, including inflation, interest rates and government policy, not only the firm's internal problems.

  1. AI and II only
  2. BII and III only
  3. CI and III onlyCorrect
  4. DI, II and III

Explanation

Statement I is correct: capital management, including capital budgeting and the cost of capital, is a recognised area of scope. Statement III is correct: demand forecasts guide production schedules, inventory and sales planning. Statement II is wrong because Business Economics also studies the external environment, such as inflation, interest rates and government policy, which affects the firm's decisions. So only I and III are correct.

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