Branches of Economics

For a precise and detailed study of various aspects and all economic problems, economics is broadly divided into two branches.

1) Microeconomics

2) Macroeconomics

Microeconomics: “Micro” means small. Microeconomics is the study of the behavior of individual economic units. These units include individual households, producers, firms and industries.

Subject matter of Microeconomics

1. Theory of consumer behavior/demand: In this we study how individual consumer distributes his income among various goods and services as to maximize his utility.

2. Theory of Production: What quantities of different factors of production are used in producing a commodity.

3. Theory of product pricing: how prices of various products are determined.

4. Theory of Distribution: How the output produced is shared among various factors of production.i.e determination of wages, determination of interest, determination of rent, determination of profit.

5. Theory of cost: How producers will minimize his cost of production.

6. Welfare economics: In this we study whether resources are efficiently allocated so there is optimal utilization of resources, maximum welfare and output.

Microeconomics explains how these units play their part in the working of whole economic system,it revolves around interaction between producers and consumers.

Since in microeconomics we look at the individual economic unit and then observe the details of its operation,it is also called microscopic study of the economy.

Macroeconomics: It is the study of the behavior of broad economic aggregates.It is the study of the economy as a whole.The unit is the entire economy rather than a part of it.It deals with big issues relating to entire economy like problem of inflation, price level, total output, unemployment, economic growth etc.

Subject matter of Macroeconomics

1. Theory of national income: In this we study concept of national income its different elements and measurement.

2. Theory of output and employment: Problem relating to employment and unemployment.

3. Theory of money: changes in the demand and supply of money have an impact on the level of employment. So we study function and theories of money.

4. Theory of general price level: Problem relating to inflation and deflation.

5. Theory of economic growth: monetary and fiscal policies of the government are studied under this.

6. Theory of international trade: issues relating to international trade.Export and import,exchange rate,balance of payment are the main issues under this.