Economics is the dynamic social science dealing with economic relations and the economic activities of human beings living in society. Its basic function is to study human behavior in relation to optimizing the allocation of available resources to achieve the given ends. Different economists have defined economics differently. Human desires are unlimited and the resources to satisfy them are limited. Therefore, scarcities of resources in comparison to human demands are the central economic problems. In order to solve these problems, economics teaches human beings about how select the alternative uses of scarce resources and how to achieve the maximum satisfaction from them. So, the field of economics is surprisingly broad. Its subject matter or field keeps on changing. It means the opinions of economists are being changed over a period of time and as a result, there is no accurate measurement of subject matter or scope of economics. Unlike in ancient time economics nowadays cannot be confined into certain areas or fields. So, the discussion on the topic of the subject matter of economics to date can be presented on a different basis.
Classification of subject matter of economics
Definition of economics
Economics is the study of wealth, welfare and relation between scarcity ans choice
Economics is study of never ending cycle of want-effort-satisfaction and thereby created economic activities
Economics is divided into microeconomocs and macroeconomics
The subject matter on the basis of representative definition of economics
Economics has its own subject matter. Different economists have different views regarding the subject matter of economics. Basically, there three views as classical, neoclassical and modern views if we consider the definitions of economics. The classical economists (led by Adam Smith) and his followers considered economics as a science that deals with ‘wealth’. For them, wealth was not only the means but an end in itself. So, economics was the study of production and distribution of wealth for them.
Similarly, the Leader of neo-classical economics Alfred Marshall considered ‘material welfare’ as the subject matter of economics. Neoclassical economics placed human welfare as an end and wealth the means to achieve welfare. His thought added the matter of economics from wealth to human welfare. Another economist, Lionel Robbins came with a wider view of economic literature. He stated that two major factors were responsible for the emergence of economic problems and subject matters of economics. They were; the existence of unlimited human wants and the scarcity of available resources. The numerous human wants are to be satisfied through the scarce resources available on the earth. So, he has added the subject matter of economics towards the study of how a society or individual utilize their limited resources to fulfill unlimited wants.
However, each definition mentioned above is incomplete and inadequate in the present context of modern economics.
The subject matter on the basis of economic activities/on the basis of traditional approach
This view is the outcome of the effort of the economists of different schools of thought like classical, neo-classical and modern schools of economic thought. It is also known as the traditional view regarding the subject matter of economics. According to this view, the subject matter of economics is to study the continuous economic circle of wants-efforts-satisfaction;
As human wants are boundless, they are every time making efforts to get satisfaction. They are once satisfied that won’t remain forever. So, they keep on making effort in each and every step of their life. It is a continuous process and known as a continuous economic circle of wants-efforts-satisfaction. This chain of the economic circle gives birth to the following economic activities.
- Consumption: Consumption means using goods and services for the satisfaction of wants. The consumption activities of people are studied under the theory of consumer behavior as the law of diminishing marginal utility, the law of maximum satisfaction, etc. It is related to the satisfaction of human wants through the use of goods and services.
- Production: It is the process of creating a utility to the consumers or the production of goods and services for satisfying human wants. Therefore, the transformation of various raw materials or inputs into a final output or final goods and services is called production. For production different factors of production like labor, capital, land, organization are needed and assembled. Under production, economics studies different theories of production like the law of variable proportion, the law of returns to scale, etc. are studies.
- Exchange: Exchange refers to an activity in which one gives up something for something else. The process of sell and purchase of goods and services in the market is called an exchange. Or it is the process of determining the prices of products produced. Under this, economics studies the price determination of products under various market structures like perfect competition, imperfect competition, and their functioning.
- Distribution: To produce anything or commodity different factors of production are needed and after contributing to the production process they get their part of reward from the producers. The landowner gets rent, the laborer gets wages, the capitalist receives interest and the entrepreneur gets profit and if we add all the incomes earned by owners of factors of production by rendering factor services national income is obtained. The way how national income is distributed among various factors of production is called distribution. Under this, various theories relating to factor pricing are studied. For example, theories of rent, profit, wages, and interest.
- Public finance: It is the subject deals with revenue and expenditure of the government. Public finance is the area of economics deals with the financing of government expenditure programs. Under this, government income, government expenditure, source of borrowing, fiscal policies, etc. are studied.
The subject matter on the basis of the modern approach
The modern approach is different than the traditional approach. Economic theories as it stands today, have several branches. These two are the most important as microeconomics and macroeconomics. Thus, in modern times all the economic theories and policies are classified under these two branches of economics. Thus, the study of Economics under the modern approach is divided into two parts;
- Price Theory or Microeconomics and,
- Income Theory or Macro-economics
Microeconomics or Price theory
Microeconomics is a branch of economics that is concerned with the economic activities and behavior of small and individual units of an economy. Microeconomics studies about small individual units of an economy such as the behavior of an individual consumer, producer, a household, a firm, and so on. It is thus, a study of a particular unit rather than all the units combined. Microeconomics always looks at how individual units take the decision in the given economic system. Microeconomics mainly studies consumer behavior, product pricing, and factor pricing, etc. The main aim of microeconomics is to help the small units of an economy to allocate scarce resources in optimal ways.
Macroeconomics or income theory
Macroeconomics is a branch of economics dealing with the functioning of the economy as a whole. It means, macroeconomics studies the behavior of the economic system as a whole. It studies the behavior of aggregates like total output, national income, employment, general price level, gross domestic product, etc. it is also known as income theory. Its main objective is to determine and stabilize aggregate output, income, employment, inflation and achieve higher economic growth.
The subject matter of economics deals with the matters that one can study in economics or the issues which are a major concern and focuses on economics as a social science. Since the thought, preferences and economic behavior of human beings keep changing with passes of time and as a result, the concern of economics is also going in the same direction. Thus, the subject matter of economics is not limited rather it is growing, enlarging and expanding with the phase of time. Currently, it has been studying by dividing all the economic theories into two branches of economics as microeconomics and macroeconomics.