Question

Please cite and describe one example of how economic theory can be applied to help solve or analyze a business decision.

Answer 1

Economics is all about allocation of scarce resources to alternative uses so as to achieve maximum possible satisfaction of the people. Basically economics is as a science .Because it studies about human behaviour as a relationship between scarce means which have alternative uses. as we know resources are limited hence what to produce, when to produce ,how much to be produced and what factor combination be used for the production of goods involve allocation of resources.

In business,decision regarding demand for its product and cost of its production is required careful analysis of every fact. Hence decision regarding how to utilise scares resources to achieve firm's objective most efficiently is discussed in business decision.

Economic theory has been broadly divided into microeconomics and macroeconomics .Microeconomics deals with theory of decision making by individual consumers, resource owners and business firms in a economy.

Macroeconomics focuses on the study of economy as whole.

Example - Theory of demand relates to the study of consumer behavior. It addresses questions as to what incites a consumer to buy a product. It depends upon the various determinants of demand as price,income,population ,preferences,promotion etc. Hence demand forecasting serves as a guide to management for maintaining its market share in competition with its rivals,thereby securing its profit.

Hence theory of demand analyze and solve the business problems .