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

Which one of the following statements about the scope of Business Economics is correct?

The correct statement is that Business Economics uses both micro and macro concepts and has a normative element. It analyses firm decisions and the external environment, and it also recommends what managers should do. Statements restricting it to firm theory, positive analysis or profit-making firms are incorrect.

  1. AIt covers only the theory of the firm and excludes any study of the external environment
  2. BIt is concerned only with positive analysis and never with normative recommendations
  3. CIt is limited to the study of profit-making business firms and cannot be applied to non-profit organisations
  4. DIt draws on both microeconomic and macroeconomic concepts, and also has a normative element in guiding decisionsCorrect

Explanation

Business Economics applies microeconomics to internal firm decisions and macroeconomics to the external environment. It is also normative because it prescribes what a firm ought to do to achieve its objectives. The other statements wrongly restrict it to firm theory alone, to positive analysis only, or to profit-making firms only.

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