Economics and it's Classification

 

Economics

Economics is a subject which aims at utilizing the scare resources in the scientific way so that human beings can achieve maximum satisfaction from the use of the limited resources. Economics is a social science that deals with the study of how individuals, governmental bodies, firms, and nations make decisions in allocating scarce resources in order to satisfy their unlimited wants and desires. It is a study of production and consumption of goods and services, and the transfer of wealth to produce and obtain those goods and services.

Economics is generally classified into two major categories, microeconomics and macroeconomics.

1.     Microeconomics

Microeconomics is the study of the economic action of individuals and small group of individuals and explains how and why these units make decision. The small groups of individuals may be households, firms and industries consisting several firms.  The term microeconomics was first coined by a Norwegian economist, Ragner Frich in 1993. Microeconomics is composed of two words- micro and economics. Micro has been derived from a Greek word ‘mikros’ which means small.

It analyzes certain aspects of human behavior, and shows how individuals and firms respond to changes in factor pricing as a result of interaction between demand and supply.

Features of Microeconomics:

a.      It is individualistic economics.

b.     It is concerned with the behavior of the individual economic entities such as households, firms, market, etc.

c.      It pre-supposes the existence of full employment in the economy.

d.     It analyses the economic phenomena under the cetersis parbus assumption.

e.      It is applicable under market economy where prices play a certain role/

f.       It is also called “price theory” or “value theory”.

g.     It’s objective is to analyze the process by which scarce resources are allocated among alternative uses.

Importance of Macroeconomics:

a.      It explains how the consumers and producers in an economy take decision about the allocation of productive resources among millions of goods and services.

b.     It’s tools are useful in designing price policy, taxation policy.

c.      It is helpful in the efficient allocation of resources.

d.     It is useful in making production and pricing decisions.

2.     Macroeconomics

Macroeconomics is the branch of economics that studies the behavior of an economy as a whole. It focuses on the aggregate changes that occur in the economy by analyzing the factors that influence the whole economy.

Macroeconomics studies the overall economic phenomena, such as inflation, GNP, problem of unemployment, aggregate consumption, economic growth, investment, etc.

Macroeconomics attempts to understand the causes and consequences of short-run fluctuations in national income, and helps to determine the reasons for long-term economic growth i.e. increase in national income.

Features of Macroeconomics

1.     Study of aggregate economy

Macroeconomics is concerned with the study of economic behavior of the entire economy rather than individual units.

2.     Analysis of aggregate demand and supply

Microeconomics studies the aggregate demand and supply model in order to explain the overall economic phenomena such as the GDP of a nation based on various components.

3.     Assist in overall economic growth

An increase in total output of goods and services is termed as economic growth. The study of macroeconomic components like GDP, GNP, inflation rate, and unemployment rate helps to determine the overall economic growth of a state or country.

4.     Formulation of rules and regulations

The study of macroeconomic variables provide a proper analysis for formulating and implementing polices that help to develop an economy in the best interest of all the participants in a given economy.

Some parts are adopted from: www.businesstopia.com