SCOPE OF ECONOMICS –SUBJECT MATTER OF ECONOMICS
|The subject matter of Economics(picture from harboroughtutors.co.uk)|
The subject matter of economics does not remain constant over a long period of time. It changes with the change in human attitude and their activities. The classical economists argued that economics is concerned with wealth. According to neoclassical economists, the subject matter of economics was material welfare. In Robbin’s view subject matter of economics is scarcity and choice. Thus, according to time, needs and situations, the subject matter of economics also go on changing.
The subject matter of economics can be divided on the following two bases:
1. Traditional Approach
2. Modern Approach
1. Traditional Approach
Human wants are unlimited. Several economic activities are made to meet human wants. Since human wants are unlimited and regular fulfillment of human needs gives birth to many wants. The cycle of wants, efforts, and satisfaction continues from birth till death. This continuous cycle of wants -efforts – satisfaction constitutes the Subject matter of economics. The cycle of wants-efforts and satisfaction is split into departments such as:
It is the act of using up of goods for the satisfaction of wants. It includes various laws and theories like the law of demand, the law of diminishing marginal utility, the law of substitution, etc. which are related to the explanation of consumer behavior.
Production is the act of transformation of the factors of production in the form of goods and services. The produced goods can be used in consumption as well as for further production. It includes the law of production, division of labor, capital formation, the process of production, etc.
Exchange bridges production and consumption. lt is the process through which buyers and sellers interact and make dealings tor their mutual benefit. In barter system goods are exchanged for goods. But in modern economy money works as a medium of exchange. Exchange covers the process of price determination in different market structures.
Distribution refers to the process of determination of rewards to factors of production used in the production process. lt includes the theories based on determination of prices of factors of production like land, labor, capital and organization in the form of rent, wages, Interest, and profits.
Public finance refers to the study of income and expenditure
of the government. The government collects revenue from the tax, non-tax and
other sources to meet its recurrent and capital expenditure. Public finance includes government revenue, government expenditure, government borrowings, and financial administration.
2. MODERN ECONOMICS OF SCOPES
Modern economists have divided the subject matter of economics into two branches:
Microeconomics is a branch of economics that studies the small units of the economy. It is the study of the economic actions and behavior of individual economic units and a small group of such individual units. It covers resource allocation product pricing, factor pricing and theory of economic welfare. It is a microscopic study of the economy.
Macroeconomics is a branch of economics that studies the economy as a whole. It studies the large aggregates and averages of the economy such as national income, national output, price level, employment level, trade cycle, etc. covers the theory of national income and output determination, the theory of general price level, the theory of economic growth and the macro theory of distribution.