📘 Economics & Finance Study Guide
Table of Contents
1. Introduction to Economics
2. Microeconomics
○ Demand & Supply
○ Elasticity
○ Consumer & Producer Theory
○ Market Structures
3. Macroeconomics
○ GDP & Economic Growth
○ Unemployment & Inflation
○ Fiscal & Monetary Policy
4. Financial Markets
○ Money & Banking
○ Stocks, Bonds, and Securities
○ Financial Statements & Ratios
5. Corporate Finance
○ Time Value of Money
○ Capital Budgeting
○ Risk & Return
6. International Economics
○ Trade & Tariffs
○ Exchange Rates
7. Key Formulas & Graphs
8. Practice Problems & Examples
1. Introduction to Economics
● Economics: The study of how people, businesses, and governments make choices
about scarce resources.
● Scarcity: Limited resources vs. unlimited wants.
● Opportunity Cost: The value of the next best alternative that is forgone.
Example:
If you spend $10 on a pizza instead of a book, the opportunity cost is the enjoyment or
knowledge you would have gained from the book.
,2. Microeconomics
2.1 Demand & Supply
● Law of Demand: As price decreases, quantity demanded increases (ceteris paribus).
● Law of Supply: As price increases, quantity supplied increases.
● Market Equilibrium: Where supply = demand.
Example Graph:
● Draw demand curve (downward sloping) and supply curve (upward sloping). Equilibrium
at intersection.
2.2 Elasticity
● Price Elasticity of Demand (PED) = % Change in Quantity Demanded ÷ % Change in
Price
○ Elastic (>1): Sensitive to price changes
○ Inelastic (<1): Less sensitive to price changes
● Income Elasticity = % Change in Quantity Demanded ÷ % Change in Income
● Cross-Price Elasticity = % Change in Quantity Demanded of Good A ÷ % Change in
Price of Good B
2.3 Consumer & Producer Theory
● Utility: Satisfaction derived from consuming goods.
● Marginal Utility: Extra satisfaction from consuming one more unit.
● Profit Maximization: Total Revenue – Total Cost = Max Profit
2.4 Market Structures
1. Perfect Competition: Many firms, identical products, no barriers.
2. Monopoly: One firm, high barriers, price maker.
3. Oligopoly: Few firms, products may be similar, interdependent pricing.
4. Monopolistic Competition: Many firms, differentiated products, free entry/exit.
, 3. Macroeconomics
3.1 GDP & Economic Growth
● GDP = Total value of all goods/services produced in a country.
● Nominal vs Real GDP: Real GDP adjusts for inflation.
● Economic Growth: Increase in Real GDP over time.
3.2 Unemployment & Inflation
● Types of Unemployment:
○ Frictional, Structural, Cyclical
● Inflation: Rise in general price levels
● CPI (Consumer Price Index): Measures inflation for consumers
3.3 Fiscal & Monetary Policy
● Fiscal Policy: Government spending & taxation to influence economy.
● Monetary Policy: Central bank actions (e.g., interest rates, money supply).
● Expansionary Policy: Increase spending/lower interest rates → stimulate growth
● Contractionary Policy: Reduce spending/higher interest rates → control inflation
4. Financial Markets
4.1 Money & Banking
● Functions of Money: Medium of exchange, store of value, unit of account.
● Central Banks: Control money supply, set interest rates.
● Commercial Banks: Accept deposits, give loans, create money via lending.
4.2 Stocks, Bonds & Securities
● Stocks: Ownership in a company; potential dividends & capital gains.
● Bonds: Debt instrument; fixed interest payments.
● Risk vs Return: Higher risk → higher potential return
4.3 Financial Statements & Ratios
● Balance Sheet: Assets = Liabilities + Equity
● Income Statement: Revenue – Expenses = Profit
● Key Ratios:
Table of Contents
1. Introduction to Economics
2. Microeconomics
○ Demand & Supply
○ Elasticity
○ Consumer & Producer Theory
○ Market Structures
3. Macroeconomics
○ GDP & Economic Growth
○ Unemployment & Inflation
○ Fiscal & Monetary Policy
4. Financial Markets
○ Money & Banking
○ Stocks, Bonds, and Securities
○ Financial Statements & Ratios
5. Corporate Finance
○ Time Value of Money
○ Capital Budgeting
○ Risk & Return
6. International Economics
○ Trade & Tariffs
○ Exchange Rates
7. Key Formulas & Graphs
8. Practice Problems & Examples
1. Introduction to Economics
● Economics: The study of how people, businesses, and governments make choices
about scarce resources.
● Scarcity: Limited resources vs. unlimited wants.
● Opportunity Cost: The value of the next best alternative that is forgone.
Example:
If you spend $10 on a pizza instead of a book, the opportunity cost is the enjoyment or
knowledge you would have gained from the book.
,2. Microeconomics
2.1 Demand & Supply
● Law of Demand: As price decreases, quantity demanded increases (ceteris paribus).
● Law of Supply: As price increases, quantity supplied increases.
● Market Equilibrium: Where supply = demand.
Example Graph:
● Draw demand curve (downward sloping) and supply curve (upward sloping). Equilibrium
at intersection.
2.2 Elasticity
● Price Elasticity of Demand (PED) = % Change in Quantity Demanded ÷ % Change in
Price
○ Elastic (>1): Sensitive to price changes
○ Inelastic (<1): Less sensitive to price changes
● Income Elasticity = % Change in Quantity Demanded ÷ % Change in Income
● Cross-Price Elasticity = % Change in Quantity Demanded of Good A ÷ % Change in
Price of Good B
2.3 Consumer & Producer Theory
● Utility: Satisfaction derived from consuming goods.
● Marginal Utility: Extra satisfaction from consuming one more unit.
● Profit Maximization: Total Revenue – Total Cost = Max Profit
2.4 Market Structures
1. Perfect Competition: Many firms, identical products, no barriers.
2. Monopoly: One firm, high barriers, price maker.
3. Oligopoly: Few firms, products may be similar, interdependent pricing.
4. Monopolistic Competition: Many firms, differentiated products, free entry/exit.
, 3. Macroeconomics
3.1 GDP & Economic Growth
● GDP = Total value of all goods/services produced in a country.
● Nominal vs Real GDP: Real GDP adjusts for inflation.
● Economic Growth: Increase in Real GDP over time.
3.2 Unemployment & Inflation
● Types of Unemployment:
○ Frictional, Structural, Cyclical
● Inflation: Rise in general price levels
● CPI (Consumer Price Index): Measures inflation for consumers
3.3 Fiscal & Monetary Policy
● Fiscal Policy: Government spending & taxation to influence economy.
● Monetary Policy: Central bank actions (e.g., interest rates, money supply).
● Expansionary Policy: Increase spending/lower interest rates → stimulate growth
● Contractionary Policy: Reduce spending/higher interest rates → control inflation
4. Financial Markets
4.1 Money & Banking
● Functions of Money: Medium of exchange, store of value, unit of account.
● Central Banks: Control money supply, set interest rates.
● Commercial Banks: Accept deposits, give loans, create money via lending.
4.2 Stocks, Bonds & Securities
● Stocks: Ownership in a company; potential dividends & capital gains.
● Bonds: Debt instrument; fixed interest payments.
● Risk vs Return: Higher risk → higher potential return
4.3 Financial Statements & Ratios
● Balance Sheet: Assets = Liabilities + Equity
● Income Statement: Revenue – Expenses = Profit
● Key Ratios:
