2. What Is Economics?
Economics is a social science concerned with the production,
distribution, and consumption of goods and services. It studies how
individuals, businesses, governments, and nations make choices about how
to allocate resources.
What is finance ?
Finance, of financing, is the process of raising funds or capital for any
kind of expenditure. It is the process of channeling various funds in the
form of credit, loans, or invested capital to those economic entities that
most need them or can put them to the most productive use.
3. ◦ Indroduction of economics
◦ Economics is the study of how people allocate scarce resources for
◦ production, distribution, and consumption, both individually and collectively.
◦ Two major types of economics are microeconomics, which focuses on the
◦ behavior of individual consumers and producers, and macroeconomics
◦ which examines overall economies on a regional, national, or international scale.
◦ Economics is especially concerned with efficiency in production and exchange and
◦ uses models and assumptions to understand how to create incentives and policies that will ma
efficiency.
◦ Economists formulate and publish numerous economic indicators, such as gross
◦ domestic product (GDP) and the Consumer Price Index (CPI).
◦ Capitalism, socialism, and communism are types of economic systems.
4. Understanding Economics
One of the earliest recorded economic thinkers was the 8th-century B.C.
Greek farmer/poet Hesiod, who wrote that labor, materials, and time
needed to be allocated efficiently to overcome scarcity. But the founding of
modern Western economics occurred much later, generally credited to the
publication of Scottish philosopher Adam Smith's 1776 book, An Inquiry
Into the Nature and Causes of the Wealth of Nations.
Branches of economics
Microeconomics is a branch of mainstream economics that studies the behavior of
individuals and firms in making decisions regarding the allocation of scarce
resources and the interactions among these individuals and firms. Microeconomics
focuses on the study of individual markets, sectors, or industries as opposed to the
national economy as whole, which is studied in macroeconomics.
One goal of microeconomics is to analyze the market mechanisms that
establish relative prices among goods and services and allocate limited
resources among alternative uses. Microeconomics shows conditions under
which free markets lead to desirable allocations. It also analyzes market
failure, where markets fail to produce efficient results.
5. some of the defination of economics
◦ Economic history examines the evolution of the economy and economic institutions,
using methods and techniques from the fields of economics, history, geography,
sociology, psychology, and political science.
◦ Education economics examines the organization of education provision and its
implication for efficiency and equity, including the effects of education on
productivity.
◦ Financial economics examines topics such as the structure of optimal portfolios, the
rate of return to capital, econometric analysis of security returns, and corporate
financial behavior.
◦ Health economics examines the organization of health care systems, including the
role of the health care workforce and health insurance programs.
◦ Industrial organization examines topics such as the entry and exit of firms,
innovation, and the role of trademarks.
◦ Law and economics applies microeconomic principles to the selection and
enforcement of competing legal regimes and their relative efficiencies.
6. Political economy examines the role of political institutions in determining
policy outcomes.
Start your journey to financial fluency by learning some basic financial terms
and concepts!
1.Net worth.
2.Inflation.
3.Liquidity.
4.Bull market.
5.Bear market.
6.Risk tolerance.
7.Asset allocation and diversification.
8.Simple Interest.
7.
8. ◦ Types of Finance and Financial Services
◦ Finance is a broad term that describes activities associated with
banking, leverage or debt, credit, capital markets, money, and investments.
◦ Essentially, finance represents money management and the process of
acquiring needed funds. Finance also encompasses the oversight, creation,
and study of money, banking, credit, investments, assets, and liabilities that
make up financial systems.
◦ Types of Finance
◦ Individuals, businesses, and government entities all need funding to
operate. Therefore, the finance field includes three main subcategories:
◦ Personal finance
◦ Corporate finance
◦ Public (government) finance
9. ◦ 1. Personal Finance
◦ Personal finance is specific to an individual’s situation and activity. Therefore,
related financial strategies depend largely on a person’s earnings, living
requirements, goals, and desires. Financial planning involves analyzing the
current financial position of individuals to formulate strategies for
future needs within financial constraints.
◦ For example, individuals must save for retirement. That requires saving or
investing enough money during their working lives to fund their long-term
plans. This type of financial management decision falls under personal
finance.
◦ Personal finance covers a range of activities, including using or purchasing
financial products such as credit cards, insurance, mortgages, and various
types of investments.
◦ Banking is also considered a component of personal finance because
individuals use checking and savings accounts as well as online or mobile
payment services such as PayPal and Venmo.
10. ◦ 2. Corporate Finance
◦ Corporate refers to the financial activities related to running a corporation. A division or
department usually is set up to oversee those financial activities.
◦ For example, a large company may have to decide whether to raise additional funds through
a Bond issue or stock offering. Investment banks may advise the firm on such considerations
and help it market the securities.
◦ Startups may receive Capital from angel investors or venture capitalists in exchange for a
percentage of ownership. If a company thrives and decides to go public, it will issue shares
on a stock exchange through an (IPO) to raise cash. In other cases, to budget its capital
properly and effectively, a company with growth goals may need to decide which projects to
finance and which to put on hold.
◦ All of these types of decisions fall under corporate finance.
◦ 3. Public Finance
◦ Public finance includes taxing, spending, budgeting, and debt-issuance policies that affect
how a government pays for the services it provides to the public. It is a part of fiscal policy
◦ The federal and state governments help prevent market failure by overseeing the allocation
of resources, the distribution of income, and economic stability. Regular funding is secured
mostly through taxation. Borrowing from banks, insurance companies, and other nations also
helps finance government spending.
◦ In addition to managing money in day-to-day operations, a government body also has social
and fiscal responsibilities. A government is expected to ensure adequate social programs for
its taxpaying citizens. It must maintain a stable economy so that people can save and be
assured that their money will be safe.