Business economics can be simply viewed as the application of economics for the analysis of business. Business, on the other hand, is an economic activity. There is a need for objectively analyzing structure scope, efficiency and growth of business Economic analysis is done to provide objectivity. However, indiscriminate application of economics to business analysis can, sometimes, create confusing paradoxes. These are referred to as Fallacies. The Business Decisions are taken in the light of Economic Analysis keeping in view the Economic Fallacies.
- Economic Fallacies
- Economic Analysis
- Business Decision
Economic fallacies are listing below:
1. The Fallacy of Composition
To assume what is true for one part will necessarily be true for the whole is fallacy of composition e.g. saving of all families. One saves it is good all save sales unemployment recession e.g. bumper crop
2. Post hoc, ergo propter hoc
It is Latin and its meaning is, “After that therefore, because of that”. What follows is result of the preceding.
3. The Fallacy in Syllogism
Syllogism is a particular form of reasoning. It has
Major premise, Minor premise, and Conclusion
For example: Major premise: Blind can’t read
Minor premise: Ali can’t read
Conclusion: So Mr. Ali is blind
4. Probabilistic vs. Deterministic Inferences
Most generalizations of economic analysis are subject to fulfillment of certain condition called assumptions. One such assumption that dominates economic analysis is “other things remaining the same.” But other things are so diversified that they seldom remain constant. So the conclusions from economic analysis are bound to be probabilistic instead of deterministic.
5. Black, White and Grey
Fallacy of assuming that there is no middle ground so result is accepted or rejected.
6. Wishing it were So
We believe the things we want to believe we always accept favorable interpretation of event or a course of action. This can ruin the analysis.
1. Micro Vs Macro Economic Analysis
Micro economic analysis
Its focus is on individual consumer, producer a firm an industry, as single price a single commodity etc. it is a step by step analysis and analyses one variable at a time other things remaining the same.
Macro economic analysis
This studies the economy as a whole. Aggregate demand, price, supply etc are its concern.
2. Partial vs. General Equilibrium Analysis
Partial Equilibrium analysis
In partial equilibrium analysis, one part of the system is being analyzed assuming other parts to be constant the interdependence is neglected and the analysis is done in isolation.
General Equilibrium analysis
When partial aquarium is done, other thing are assumed to be constant however, the other things are gradually let to be changing in order to analyze the whole. This is called generally equilibrium. It takes into account the interdependence of various variables. But the general equilibrium also, does not the scope of analysis the economic system as a whole.