The words economics and finance, more or less, seem that they are conveying a similar meaning. In the world of business, theories of finance and economics are often used in important decision makings. In academic field, finance and economics have their own identity. In this article, we will try to understand the differences between economics and finance.
Economics
The branch of knowledge that concerns to the production, consumptions and transfer of wealth is known as economics. That is, it analyses how the scarce resources are allocated by the forces of supply and demand. Economics can be broadly subdivided into micro economics and macro economics. Microeconomics analyses the behavior of individuals and firms. It, more focuses on how decision making process is taking place in individual economic units. Theory of demand, theory of firms, and demand for labour are some of the main topics that are discussed in more detail under microeconomics. Macroeconomics deals with broader concepts like unemployment, inflation, and government policies.
Finance
Finance means, the management of the large amount of money. The fund management revolves around the interconnection among time, risk and money. Private finance, public finance, and business finance are the main three areas of finance. Private finance deals with the income of an individual or a family. It is also known as personal finance. Public finance focuses more on financial activity of a country (or government). It is also known as state finance. Business finance refers to financial decisions of enterprises. Business finance is also known as corporate finance. Finance can be seen as a sub set of economics. Finance management tries to identify how a company can finance its operations such that it would be able to find the possible mix of debt and equity that makes the cost of capital lower.
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What is the difference between Economics and Finance? – Though, economics and finance are closely interrelated, they have some unique features that differentiate one from the other. – Finance is fund management, whereas economics is a social science. – Economic deals with optmisation of the scarce resources, while finance focuses more on wealth maximization for the stake holders. – Finance focuses more on time value of money, whereas economics focus on money value of time. – Finance can be seen as a sub set of economics. – Mastering the principles of economics will create economist whereas mastering the principal of finance will create finance analyst. – Economic is more theoretical subject whereas finance management is more on numbers.
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