Scope of Economics

The main branches of economics are:

Microeconomics which is the study of the smallest economic decisions making units of the society. Microeconomics theory is a branch of economics that studies the behavior of individual decision making units such as consumers, resource owners and business firm
as well as individual markets in a free market economy. The aim of microeconomics is to explain the determination of prices and quantities of individual goods and services.

Microeconomics also considers the impact of government regulation and taxation of individual markets. For example, microeconomics analyses the forces that determine the prices and quantities of television sets sold. Microeconomics can be considered as the ultimate cellular structure of economics.

1.It is the study of individuals, households and firms. The major areas are

  • demand and supply analysis
  • market equilibrium
  • consumer theory
  • theory of the firm
  • market structure
  • distribution theory

Macroeconomics is the study of bigger and complex systems. Macroeconomic theory is the study of the behaviour of the economy as a whole whereby the relationship is considered between broad economic aggregates such as national income, employment and prices. The economy is disaggregated into broadly homogenous categories and determinants of the behavior of these aggregates are integrated to provide a model to the entire economy.

2. Macroeconomics focuses on the economic stabilization whereby government policy is used to moderate business cycles and encourages real economic growth. Macroeconomics became a separate topic of discussion in the aftermath of John Maynard Keynes and the great depression. The line between microeconomics and macroeconomics is, however, blurred and there are many areas of overlap between the two. Key areas of macroeconomics are:

  • national income
  • economic growth and development
  • money and banking
  • public finance
  • unemployment
  • inflation
  • international trade
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