Difference Between Economics and Business
In today’s complex global market and economies, it is important to know what direction do you want to take especially if you are getting started on your career path. Business and economics go side by side, wherein, businesses offer products and services that generate economic output, for example, businesses sell goods and services to consumers, whereas, economics determine the supply and demand of such products in a particular economy. Despite the above mentioned relationship between these two branches of social sciences, they are different from each other.
What are Economics and Business?
Economics is about carefully and analytically studying the human behavior with regards to limited incentives or resources. It is a branch of social science that studies the decisions and actions of employees, firms, customers, individuals, and governments, in order to identify their impact on the economy of a country. It is related to a large number of subject matters, including but not limited to politics, mathematics, international relationships, etc.
Business, on the other hand, is an economic system whereby goods and services are exchanged between two or more parties for money. Every business needs different forms of funds, and customer base to whom it can sell its product on a regular basis in order to make profits.
It is about maximizing the value of wealth with respect to the behavior of people. It consists of a collection of different activities and organizational behavior, including finance, accounting, management, business strategy, human resource, sales and marketing, product development and analysis.
It also takes into account the external factors of an economy, political situation of a nation, and government laws and regulations to assess how it will impact an organization and an industry as a whole. Furthermore, it also analyzes the rapidly changing environmental conditions so as to see their impact on the overall value.
1) Key Concepts
The key concepts of economics are supply and demand, the rate of interest, the rate of exchange, production, inflation, international trade, balance of payment, and more. Economics enables individuals to think with logical reasoning and to read theories, so that they can be applied in understanding the mechanism of economies around the world.
It allows people to be able to comprehend the complex issues of an economy in such a way that they are able to gain benefit out of it.
The key concept of a business is to earn profit and to maximize shareholder’s wealth. An increase in the wealth of business eventually increases the stock prices of a company, which consequently increases shareholders’ net worth.
Economics – Types
There are different strands of economics, including micro-economics and macro-economics, pure and applied economics, and industrial and financial economics.
Micro and Macro Economics – Microeconomics deals with economic decisions at a micro level. It is about people and firms in any given economy and evaluating the element of human behavior. For example, micro economics tells you the impact of price on purchasing decision of a consumer. On the other hand, macroeconomics deals with decisions at a large level. It deals with aggregate decisions taken by people of a particular country, for example, it caters the questions like the influence of the change in interest rates on national savings. Both micro and macro-economics are connected with each other, and can be helpful for individuals and the overall economy to make informed decisions.
Pure and Applied Economics – Pure economics deals with pure logic and deals with principle lines of arguments, whereas, applied economics is an application of economic theories in a real world with a motive to anticipate the probable results, as it deals with providing details.
Industrial and Financial Economics – Industrial economics is a study of corporate sectors, industries and markets, which includes the firm of all sizes and levels, from a small grocery store to a superstore or shopping malls. It includes different industries, such as, car production, electricity generation, or food industry. Financial economics is a branch of economics that focuses on monetary activities. It is concerned with the relationship of various financial variables, including rates of interests, asset prices, and shares.
There are different types of businesses, including sole proprietorship, partnership, company, and limited liability. Sole proprietorship is a business owned and run by a single person and is considered as a simple form of entity. It is not a legal entity and therefore, does not have separate ownership from its owner. In a partnership business, a relationship exists between two or more persons who carry on business activities. Every partner participates by contributing labor, property, skill, and money. Profits and losses of the business are shared by all the partners as per their agreement with one another.
The company is a legal entity and is basically owned by shareholders who invest in the capital of a business to run its operations, and then there is a limited liability, wherein, the liability of a partner doesn’t exceed the amount invested in a partnership or limited liability company. The example of a limited liability company is a public listed company.
Economists explain the variations in economic variables and measure these variations as time progresses. For instance, they measure how market interactions defines the value of products, such as, computer software, motor vehicles, properties, or even haircuts. The measurement basis varies in economics; it can either be in absolute term or it can be a relative measure of quantity and price. For measurement of relative value, index numbers are commonly used.
Every business has a vision statement and a mission statement, on the basis of which, long term goals and short term objectives are identified. To make sure these goals and objectives are successfully met, key performance indicators (KPIs) are defined by the companies. These KPIs are defined to measure performance of a business. In the absence of these indicators, it becomes difficult and challenging to materialize the objectives and goals of a company.
There are many businesses that rely mainly on financial statements and sales outcome as a primary indicator of financial performance. But, an entity can create a lot of other KPIs in order to make sure the overall goals are met. This is a very effective tool to measure the success of a company as it gives a clear picture of where the business is standing at a certain point in time by tracking performance, which eventually leads to improving performance wherever needed.
It comprises the key issues faced by individuals and countries around the world, including poverty, recession, tax decisions, economic downturn, globalization, pollution, and trading. It is basically about why individuals or the government makes certain choices. It also includes the likely impact of government decisions on the economy of that country as well as on the global economy.
It takes into account the key decisions in modern, competitive, and often global environments, including how they advertise their goods, why a company approached the labor market in another country, how the final accounts will be compiled, why would companies go for mergers or take a restructuring decision, what marketing strategies should be used to boost sales and attract customers. It also accounts for the effect of change in government regulations, competition, and ethical issues of a given economy, such as going green or reducing carbon emission.
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