Escolar Documentos
Profissional Documentos
Cultura Documentos
Economics
Authors:Bilciu Lavinia
Boldojar Ioana
Badescu Victor
Bledea Razvan
Contents
Introduction................................................................................................................ 2
Business Economics................................................................................................... 3
1.Demand function.................................................................................................. 3
2. Law of demand.................................................................................................... 4
3.Exception to the law of demand...........................................................................6
4. Law of Supply...................................................................................................... 7
5. Sales maximization theory.................................................................................. 9
Conclusion................................................................................................................ 12
References................................................................................................................ 13
Introduction
Planning and decision making is the principal function of an executive in a business
organization. Decision making is the process of selecting one action from two or more
alternatives, while the planning means the establishment of the plans for the future. The decision
making function will provide the most efficient means in order to obtain a desired goal. Once a
decision is made, plans are prepared, thus forward planning goes hand in hand with decision
making.
Uncertainty is a characteristic of the conditions in which the organizations work and take
decisions, which makes the decision making process more complicated. Managers are engaged in
a continuous process of decision making through an uncertain future and the overall problem
confronting them is one of adjusting to uncertainty.
In fulfilling the function of decision making in an uncertainty framework, economic theory can
be pressed into service with considerable advantage. Economic theory deals with a number of
concepts and principles relating, for example, to profit, demand, cost, pricing production,
competition, business cycles, national income, etc., which aided by allied disciplines like
Accounting. Statistics and Mathematics can be used to solve or at least throw some light upon
the problems of business management. The way economic analysis can be used towards solving
business problems, constitutes the subject matter of Business Economics.
The goal of this paper is to provide an insight in Business Economics and its vital role within an
organization.
Business Economics
Business economics is a branch of economics that applies analysis to specific business decisions.
Through the proper use of economic models in decision making, business economics solves
business and administrative problems by prescribing rules for improving managerial decisions.
Being a connection between traditional economics and economics in practice, business
economics can be used to meet short-run objectives and identify ways to achieve goals more
efficiently.
1.Demand function
Demand refers to the quantities of goods that consumers are willing and able to
purchase at various prices during a given period of time.
Qd = f (Po, Pc, Ps, Yd, T, A, CR, R, E, N, 0)
In the case of the own price of the product, the relationship would be the higher the price the
lower the demand and vice versa. In case of the complements, if the price of the complementary
goods increases there would be a decrease in the demand level for both it and for the good that is
complementary to. In contrast if the price of a substitute good rises, then the demand for the
good that is substitute for will increase. For the fourth variable, the disposable incomes which are
the amount of money that people are willing to spend. The greater the level of the income is,
more people can afford to buy, and therefore there will be an increase in the level of demand.
Over a period of time tastes can change significantly, but this may incorporate a wide range of
factors, for example availability of alternatives, social pressures or changes in technology.
The levels of advertising represents the level of the own product advertising, together with the
substitutes and complements advertising. In general, the advertising for a good results with a
higher the demand for that good. Given the symbiotic relationship between the goods and its
complements, the higher the level of the advertising would be there will be an increase in the
level of demand for it and for the good which it is complementary to.
Variable CR stands for availability of credit while variable R stands for the rate of interest. The
expectations in the demand function may include expectations about price and income changes.
For example if a client expects an increase in a goods price, he may purchase that product in
advance in order to avoid paying a higher price, this will bring an increase in the level of demand
in the short term.
The number of potential customers will vary depending on the target market. The number of
potential customers may be a function of age or location.
The last variable of the function represents any other miscellaneous factors which may influence
the demand for a particular product.
Each product will have its own particular demand function depending on which of the above
variables influence the demand for it.
2. Law of demand
One of the most important building blocks of economic analysis is the
concept of demand. When economists refer to demand, they usually have in
mind not just a single quantity demanded, but a demand curve, which traces
the quantity of a good or service that is demanded at successively different
prices.
Therefore, the law of demand states that people tend to buy
more if the prices are low and the amount demanded falls if the
prices of a good rises. Evidence from economic studies supporting the law
of demand has shown that, assuming that all other things remain equal,
when the price of a good raises then the amount of its demand decreases.
By all other things which stay constant we referred to other five variables like
the income of the consumers, price of related goods and services, tastes or
preference of patters of consumers, expected price of the product in future
periods and the number of consumers in the market.
Qd = f(P)
where the quantity demanded is a function of the price of the good, holding
all other variables constant.
The main reason economists believe so strongly in the law of demand
is that it is so plausible, even to the ones that are not economists. Indeed,
the law of demand is rooted in our way of thinking about everyday things.
Shoppers buy more tomatoes when they are in season and the price is low.
This is evidence for the law of demand: only at the lower, in-season price are
consumers willing to buy the higher amount available. Nobody thinks, for
example, that the way to sell a car that has been weak on the market is to
raise the asking price. Again, this shows an implicit awareness of the law of
demand: the number of potential buyers for any given car varies inversely
with the asking price.
For a better understanding we will take the example of the price of the
languishing cars that are to be sold on the market and represent the demand
in the form of a table (Table 3.1) and in a demand curve (Fig. 3.1).
Quantity (Q)
5000
100
4100
160
3200
220
2200
280
price causes a movement along the curve as shown in Figure 3.1. In this
case, a rise in price from 2200 to 3200 for example, results in a fall in
quantity demanded from 280 to 220.
Demand curve
6000
5000
4000
Price (P)
3000
Demand
2000
1000
0
100
160
220
280
4. Law of Supply
Supply joins demand as one of the components of fundamental
commodity market analysis. Supply characteristics relate to the behavior of
firms in producing and selling a product or service.
The amount of a good or service offered for sale in a market during a
given period of time is called quantity supplied, which will be denoted as Qs.
The amount of a good or service offered for sale depends on an extremely
large number of variables. As in the case of the demand function all the
unimportant variables are ignored by the economists and only six of them,
which are the major ones, will be kept. These are: the price of the good itself,
the prices of the inputs, the prices of the goods related in production, the
level of available technology, the expectations of the producers concerning
the future price of the good and the number of firms or the amount of
productive capacity in the industry.
However, just as demand function, we will consider the direct supply
function or simply said supply function, which can be displayed
mathematically in functional form as
Qs = f(P)
which expresses the quantity supplied as a function of product price only, all
the other variables remaining constant.
Quantity (Q)
5000
300
4100
250
3200
200
2200
150
Figure 4.1. graphs the supply curve associated with the supply
schedule (table).
Supply curve
6000
5000
4000
Price (P)
3000
Supply
2000
1000
0
150
200
250
300
Total Costs
Total Revenues
Quantity 1 Quantity 2
Quantity
Monetary units
Break-Even Point
Units
Costs
Sales
Profit
Loss
Total
BEPsales =
Costs
Conclusion
In conclusion Business Economics presents those aspects of traditional economics, which are
relevant for business decision making in real life. Moreover it incorporates ideas from other
disciplines such as psychology, sociology and others, if they are found relevant in decision
making. Business Economics helps in reaching a variety of business decisions and giving
answers to questions such as what products and services should be produced?, What inputs
and production techniques should be used? or How should the available capital be allocated?
Therefore the overall role of Business Economics is to increase the efficiency of decision making
in businesses to increase profit.
References
Mathematical Economics[ONLINE] Available at:
http://www.universityofcalicut.info/syl/MathematicalEconomics.pdf [ Accessed 22 January
2013]
Managerial Economic[ONLINE] Available at:
http://www.gurukpo.com/admin/bookpdf/80.pdf [Accessed 30 January 2013]
Schotter A.(2009). Microeconomics-A modern approach.[ONLINE] Available at:
http://books.google.ro/books?id=oH-t0SX7nEC&pg=PA84&dq=demand+function&hl=ro&sa=X&ei=1YkJUdjZBuni4QTLi4HwDA
&redir_esc=y#v=onepage&q=demand%20function&f=false [Accessed 28 January 2013]
Nagle, Thomas T. (1987) The Strategy and Tactics of Pricing: A Guide to
Profitable Decision Making. Englewood Cliffs, N.J.: Prentice Hall;