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

Which of the following statements about Business Economics is correct?

Business Economics is both positive and normative. It explains how firms and markets actually behave, and it also prescribes what managers should do to achieve objectives such as profit maximisation. It is therefore not purely positive, not purely macro, and is closely tied to practical decision making.

  1. AIt is purely a positive science and never involves value judgments
  2. BIt is both positive and normative, since it explains business behaviour and also recommends courses of actionCorrect
  3. CIt deals only with macroeconomic aggregates and ignores the individual firm
  4. DIt is based on theory only and has no link with decision making in firms

Explanation

Business Economics analyses how firms and markets behave (positive) and also advises what a firm should do to meet its objectives (normative). It draws mainly on microeconomics but also uses macroeconomic analysis of the environment. Hence the option claiming it is purely positive is wrong.

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