The contribution of economics towards the performance of managerial duties and responsibilities is of prime importance. The contribution and importance of economics to the managerial profession is akin to the contribution of biology to the medical profession and physics to engineering. Managers are responsible for achieving the objective of the firm to the maximum possible extent with the limited resources placed at their disposal. It is important to note that maximisation of objective has to be achieved by utilising limited resources.
Though economics is variously defined, it is essentially the study of logic, tools and techniques, to make optimum use of the available resources to achieve the given ends. Economics affords analytical tools and techniques that managers require to accomplish the goals of the organisation they manage. Therefore, a working knowledge of economics, not necessarily a formal degree, is indispensable for managers. Managers are fundamentally practicing economists. While executing his duties, a manager has to take several decisions, which conform to the objectives of the firm. Many business decisions fall prey to conditions of uncertainty and risk. Uncertainty and risk arise chiefly due to volatile market forces, changing business environment, emerging competitors with highly competitive products, government policy, external influences on the domestic market and social and political changes in the country. The intricacy of the modern business world weaves complexity in to the decision making process of a business. However, the degree of uncertainty and risk can be greatly condensed if market conditions are calculated with a high degree of reliability.
Envisaging a business environment in the future does not suffice.
Appropriate business decisions and formulation of a business strategy in conformity with the goals of the firm hold similar importance. Pertinent business decisions require an unambiguous understanding of the technical and environmental conditions under which business decisions are taken. Application of economic theories to explain and analyse technical conditions and business environment, contributes greatly to the rational decision-making process. Economic theories have many pronged applications in the analysis of practical problems of business. Keeping in view the escalating complexity of business environment, the efficacy of economic theory as a tool of analysis and its contribution to the process of decision-making has been widely recognised. Contributions of economic theory to business economics:
1. The practice of building analytical models, which assist in recognising the structure of managerial problems and eliminating minor details, which might obstruct decision making has been derived from economic theory. Analytical models help in eradicating peripheral problems and help the management in retaining focus on core issues.
2. Economic theory comprises a founding pillar of business analysis- ‘a set of analytical methods’, which may not be applied directly to specific business problems, but they do enhance the analytical capabilities of the business analyst.
3. Economic theories offer an unequivocal perspective on the various concepts used in business analysis, which enables the manager to swerve from conceptual pitfalls.
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