Economics

What is Economics? & Branches of Economics

admin February 8, 2023

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What is Economics?

Table of Contents

What is Economics?

The father of economics Adam smith studied it as “an inquiry into the nature and causes of the wealth of nations”.
The term ‘Economics’ is derived from two Greek words OIKOS and NEMEIN, meaning the rule or law of the household.
Aristotle, the Greek Philosopher termed Economics as a science of ‘household management.’
Economics is a social science that deals with the production, distribution, and consumption of goods and services.
Economics is a vast subject and its definition and meaning have undergone changes over a period of time.

Meaning of Economics

Due to its vastness, the meaning of economics has changed over the course of time.
Economics focuses on the actions and interactions of economic agents. In other words, it lays unusual focus on economic factors.
It is called a dismal science, often highlighted as depressing and poor Science yet invaluable in nature.
Economics is a social science that deals with the production, distribution, and consumption of goods and services.
In Simple terms, Economics is a study of Goods and Services produced, distributed and consumed in a territory.
It works on the principle of Demand and Supply.

Branches of Economics

The study of economics is separated into two branches. There are two types –
- 1. Microeconomics and
  2. Macroeconomics.
While they are dependent and balances each other, they are still essentially different from each other. The approach and the purpose in which both terms are used is where the differences arise.

Microeconomics

- The term “micro” refers to something that is extremely little. As a result, microeconomics refers to the study of economics on a very minuscule scale.
- Eg. – Concepts of Laws of Demand and Supply, Market Equilibrium etc.
- Microeconomics studies how individual consumers and firms make decisions to allocate resources.
- Whether a single person, a household, or a business, economists may analyse how these entities respond to changes in price and why they demand what they do at particular price levels.
- Further, within the dynamics of supply and demand, the costs of producing goods and services, and how labour is divided and allocated, microeconomics studies how businesses are organized and how individuals approach uncertainty and risk in their decision-making.

Macroeconomics

- The term “macro” refers to something that is extremely enormous. The country as a whole is vast in relation to one individual. As a result, macroeconomics is concerned with economic decisions made at the national level.
- Eg. – Aggregate Demand and Supply, Keynesian Economics etc.
- Macroeconomics is the branch of economics that studies the behaviour and performance of an economy as a whole.
- Its primary focus is the recurrent economic cycles and broad economic growth and development.
- It also focuses on foreign trade, government fiscal and monetary policy, unemployment rates, the level of inflation, interest rates, the growth of total production output, and business cycles that result in expansions, booms, recessions, and depressions.

Differences between Microeconomics and Macroeconomics

Microeconomics	Macroeconomics
The term microeconomics was coined by Professor Ragnar Frisch	John Maynard Keynes is largely credited with as the inventor of modern macroeconomics
Microeconomics studies individuals and business decisions.	Macroeconomics studies the whole economy and impact of business decisions made by countries and governments.
Laws related to Marginal analysis are included in its scope.	Problems related to whole economy like employment, public finance, national income etc. are included in its scope.
It focuses on supply and demand and other forces that determine price levels	It focuses on the entire economy while taking a top-down approach to determine its course and nature
Potential investors can use microeconomics to make their decisions.	Macroeconomics is an analytical tool used to craft economic and fiscal policy.
Microeconomics analysis is simple.	Macroeconomics is complex due to the study of large groups.
Microeconomics particularly focus on price analysis.	Macroeconomics particularly focus on income analysis.
It offers a picture of the goods and services needed for a robust economy. It also will project which goods and services will have demand in future.	Macroeconomics ensure that the economic resources available in the country are optimally utilized.
Microeconomics studies individual problems and it is less important for comparative study.	Macroeconomics studies the problems relating to the economy and its importance is growing.

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