MALAIKA GHUFRAN

10470

SEE
A1
Difference between business and economics
BUSINESS
1. It is an economic system whereby goods
and services are exchanged between two
or more parties for money.
2. It is the subset of economics and a
narrow concept as compared to
economics.
3. Its activities have an objective to earn
profit.
4. It tries to maximize the wealth of its
shareholders.
5. Key metrics are Gross profit margin, Net
Profit Margin, Asset turnover ratio,
Financial Leverage, etc.
6. EXAMPLES;
a) If I made some lemonade and
sold it at the end of any road, I
would be considered a sole
proprietorship of this business.
The main disadvantage of a sole
prop is that the owner is not
protected with limited liability.
b) Hewlett-Packard (HP) is an
incredibly successful and famous
partnership business. Like eBay,
as they grew, they eventually
incorporated in 1947.
c) Merry thought is a business that
makes teddy bears, located in
Ironbridge, Shropshire, in the
United Kingdom. The business
was founded in 1930 by Gordon
Holmes. It is a private limited
company, still owned by the
Holmes family and is currently
run by Gordon Holmes’s great-
granddaughters, Sarah and
Hannah Holmes.
ECONOMICS
1. 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.
2. It is a wider concept.
3. Its activities need not to be profit.
4. It tries to maximize the welfare of
society.
5. Key metrics are Percapita Income,
Exchange rate of currencies, GDP
growth rate, Fiscal Deficit, Repo rate,
etc.
6. EXAMPLES;
a) Supply and Demand is the
basic law in economics.
When Corn crop production
increases the farmers
decrease the price of the
crop so that they can sell off
their produce. If the supply is
too high then the demand
i.e. the amount of corn
needed to feed the people of
the Country, the produce had
to be wasted and farmers
lose their cost of production.
b) the current trade war
between the USA and China
where the USA initiated a
higher tariff on the goods
imported from China and
China retaliated with similar
tariffs on US goods. Since,
both the USA and China are
large economies of the world
they do not only impact their
own countries but have an
impact on the global trade
and global economy.
c) consider a Company that
makes bats for playing
cricket. It makes cricket bats
at $ 50 and sells them at $
90. The bats thus prepared
by the Company are very
basic and do not compete
with the other premium bats
available in the market. If the
Company has to make
premium bats, it will cost it
another $ 20. Hence, while
making a decision if it needs
to make premium bats or
not, the Company will
consider only the additional
cost i.e. $ 20 required for
making the bats. The cost of
a factory or warehouse etc. is
not considered because it
already has invested money
on these items and they are
already a sunk cost even if
the Company produces or
does not produce premium
cricket bats.