Finance and economics are closely related. Economics is a subject which studies the allocation of scarce resources within the society, household or firm. It provides foundation stone for the financial decision making. Economics thus provides the essential theories necessary to make decision regarding t5he smooth operation of the firm. Hence, the knowledge of economics is essential to the financial decision maker. Finance is the study of economic happenings. In this context, finance is the application of economics. In other words, finance is a part of the economic theory of a firm.
Economics is broadly divided into two parts- micro economics and macro economics. Macro economics is the study of the whole economic system. It consists of the techniques used to analyse the changes in total output, total employment, unemployment rate, consumers' price index and so on. It analyses the effects of investment, government revenue, tax policy on export, production,employment, price and so on. Macro economic is related to the overall environment of the operation of the firm. The main subjects included In it are - banking, money and capital market, monetary, credit and fiscal policies, and economic policies used to control the economic activities. The business firms operate in the macro-economic environment. Hence, the financial mange will have to be well acquainted with the macro- economic environment, effects of change in economic policies.
Micro economics has direct use in the daily working of a firm. Micro economics is concerned with the individual firm, individual behavior and their interactions in the market.Micro economics provides theories necessary to run smoothly the business enterprises. The theories of micro economics like demand and supply analysis, profit maximization strategies, product pricing strategies, methods of measuring utility, risk and price, marginal analysis, cost analysis etc. are very useful in decision making.. The knowledge of these concepts directly benefits a firm in profit maximization and cost minimisation. Hence, it is necessary to know both the basic theories of economics and form's environment and decision technique. Besides, the applied micro economics has been developed as managerial economics. Managerial economics is the application of micro economics in business decision making. It consists of demand, production, pricing, market structure, government regulation and so on. The theories of the economic behavior of the firms and individuals are extremely important in financial decision making or finance.
Economics is broadly divided into two parts- micro economics and macro economics. Macro economics is the study of the whole economic system. It consists of the techniques used to analyse the changes in total output, total employment, unemployment rate, consumers' price index and so on. It analyses the effects of investment, government revenue, tax policy on export, production,employment, price and so on. Macro economic is related to the overall environment of the operation of the firm. The main subjects included In it are - banking, money and capital market, monetary, credit and fiscal policies, and economic policies used to control the economic activities. The business firms operate in the macro-economic environment. Hence, the financial mange will have to be well acquainted with the macro- economic environment, effects of change in economic policies.
Micro economics has direct use in the daily working of a firm. Micro economics is concerned with the individual firm, individual behavior and their interactions in the market.Micro economics provides theories necessary to run smoothly the business enterprises. The theories of micro economics like demand and supply analysis, profit maximization strategies, product pricing strategies, methods of measuring utility, risk and price, marginal analysis, cost analysis etc. are very useful in decision making.. The knowledge of these concepts directly benefits a firm in profit maximization and cost minimisation. Hence, it is necessary to know both the basic theories of economics and form's environment and decision technique. Besides, the applied micro economics has been developed as managerial economics. Managerial economics is the application of micro economics in business decision making. It consists of demand, production, pricing, market structure, government regulation and so on. The theories of the economic behavior of the firms and individuals are extremely important in financial decision making or finance.
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