Difference Between Economics and Finance

In the business world, one cannot ignore the impact of various financial and economic factors which ultimately affect the decision making process. While these two fields are very similar, stark differences exist in the way they impact business practices.

For businesses, it is important that they analyze both aspects. The results could be termed as financial economics, which allow them to make important decisions related to stocks, bonds and any other investment by using their resources at the optimum level. The financial sustainability of a business may more or less hinge on the economic sustainability of a nation. By having appropriate knowledge of the economic factors such as inflation, consumer demand and government policies (monetary and fiscal), businesses will be in a better position to predict and manage their funds for expansion and retention purposes. Moreover, policies can be regulated in manners which account for changes that are out of a company’s control.

Economics further deals with the concept of opportunity cost – the best alternative foregone. This cost is usually less when compared to accounting or financial costs which are solely based on book values. In other terms, one can further refer to finance as the study of financial markets, whereas economics is the study of those products or services which are traded in the market. Moreover, economics is the big picture where you gauge the performance of a nation, while finance is more concerned with a company or industry.

Instructions

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    Economics

    Economics is a social science that deals with the production, distribution and consumption of goods and services. It basically focuses on how scarce resources in a country will be affected by the forces of supply and demand. The field can be separated by two broad branches; micro and macro economics. The former deals with the behaviour of individuals and how it impacts the decision making process. The latter takes the economic concept to a broader level and deals with areas such as unemployment, taxes, inflation and how it affects the economy as a whole.

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    Finance

    Finance deals with the asset and money side of individuals and how they locate these resources by considering one important factor; time value of money, which implies that a dollar today will be worth more tomorrow or after a certain period of time. Finance can be further distinguished by public finance, corporate finance and personal finance. Public finance works at the state or national level (government expenditures) whereas corporate finance takes into consideration money factors related to businesses. For smaller matters, personal finance comes into play. All categories deal with money, time, and more importantly, risk.

    Economic profits are usually difficult to calculate than financial profit, which is simply the difference between revenues and expenses.

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