Economics is a social science concerned with the production, distribution, and consumption of goods and services. Economic analysis often progresses through deductive processes, much like mathematical logic, where the implications of specific human activities are considered in a “means-ends” framework.
Branches of Economics
There are two types of economics we well explain them in this article, Well, Let’s know them
Microeconomics focuses on how individual consumers and producers make their decisions. it shows how and why different goods have different values, how individuals make more efficient or more productive decisions, and how individuals best coordinate and cooperate with one another.
Basic Concepts of Microeconomics
- Demand, The theory of supply and demand help determine prices in a competitive market. it concludes that the price demanded by consumers is the same supplied by producers. That results in economic equilibrium.
- Production theory, This is the study of production or the process of converting inputs into outputs.
- Costs of production This theory states that the price of goods or services is determined by the cost of the resources going into making it.
- Labor economics is the need to understand the functioning and dynamics of the wage labor market. It looks at the suppliers of labor services, the demand for this service, and tries to understand the pattern of wages, employment, and income.
Macroeconomics is a branch of economics dealing with the performance, structure, behavior, and decision-making of an economy as a whole. This includes regional, national, and global economies. it develops models explaining relationships between a variety of factors such as consumption, inflation, savings, investments and finance, national income and output.
Basic Concepts of Macroeconomics
- Exchange Rate: Persistent prevalence of higher inflation in a country-comparative to the inflation in another country generally leads to depreciation of a currency.
- Interest Rates: When the level of price rise each unit of currency can buy fewer goods and services than before, implying a reduction in the purchasing power of the currency. So, people with excess funds demand higher interest rates, as they want to protect the returns of their investment against the adverse impact of higher inflation. As an outcome, with rising inflation, interest rates tend to rise. The reverse happens when inflation declines.
- Unemployment: There is an opposite relationship between the rate of unemployment and the rate of inflation in an economy. It has been perceived that there is a stable short-run trade-off between unemployment and inflation.
Macroeconomics vs. Microeconomics
- deals with averages and aggregates of the entire economy such as national income, aggregate output, aggregate savings etc.
- has a wide scope and interprets the economy of a country as a whole.
- is also known as the income theory because it explains the changing levels of national income of an economy during a period of time.
- deals with the circular flow of income and expenditure between different sectors of the economy.
- helps in developing policies appropriate resource distribution at the economy level such as inflation, unemployment level etc.
- deals with the decision making of single economic variables such as the demand, price, consumer etc.
- is narrow in scope and interprets the small constituents of the entire economy.
- is also known as the price theory because it explains the process of economic resources allocation on the foundation of relative prices of several goods and services.
- deals with the flow of various factors of production from a single owner to a single user of those resources.
- helps in developing policies appropriate resource distribution at a firm level.