Major Areas of Economics-financial economics
 |
Major Areas of Economics |
The field of economics is divided into two major parts:
Microeconomics and macroeconomics.
Microeconomics: Microeconomics comes from the Greek word mikros, meaning “small. It looks at the small picture.
Microeconomics analyses the behavior of the individual consumers, business firms and governments that make up the economy, and investigates the workings of individual markets.
It provides basic theory to economic activity. It looks at the choices that are made, and how they interact with each other when they come together to trade specific goods and services. Microeconomics basically covers two sections of the society: consumers and producers.
Macroeconomics: Macroeconomics also comes from the Greek word makros, meaning large, take an overall view of the economy.
It looks at the big picture. Macroeconomics analyzes the performances of the economy as a whole.
It attempts to explain the behavior of the economy as a whole,
looking at such issues as inflation, unemployment and growth. It provides the foundation for government intervention in the economy.
Importance of Micro Economics
Micro economics plays a vital role in the study of modern economic theory. It is important in the following ways :
It helps to understand the working of the economy: It helps us in understanding the working of a free enterprise economy. It gives us an idea about how major economic decisions are taken in a market economy.
Helpful in the efficient employment of resources: It suggests economizing, that is how efficiently the scarce available resources can be utilized in production process in an economy.
Helps in International Trade: Micro economics is used to explain gains from internal trade, external trade, foreign exchange, balance of payment, disequilibrium and in the determination of exchange rate.
Basis of welfare economics:
The entire structure of micro economics has been built on the basis of price theory which is an important constituent of micro economics.
It suggests the conditions of efficiency and explains how it can be achieved. It helps in improving the standard of living of the population.
Helpful in understanding the consequences of taxation: Imposition of tax leads to reallocation of resources from one place to another.
Micro economics explains how imposition of different types of direct and indirect taxes lead to attainment of social welfare.
Tool for evaluating economic policies:
It helps the states and Central government to frame economic policies like price policy, taxation policy etc.
It also explains the condition of efficiency in production and consumption.
Construction and use of models:
Micro economics constructs and uses simple models in order to understand the actual economic phenomenon.
It uses abstract models to explain the economic phenomenon.
