Subject matter of Economics

There are two approaches to the study of the subject matter of economics.

1. Traditional Approach 2. Modern approach

1. Traditional Approach: The traditional approach was introduced by classical economists. Classical means something, which has been followed for a long period of time. It functions as the basis from which new ideas are developed. It must have its originality. The ideas of classical economists are the basis of modern economic theories.

According to the traditional approach, economics deals with man. Yet economics does not deal with the body or the mind of man. Economics deals with the activities of man. Economics deals only with those activities of man through which man tries to satisfy his economic wants. There are three fundamental economic wants.

a) Food
b) Clothing
c) Shelter

In order to satisfy the economic wants man uses goods and services. This is known as consumption in economics. In the Theory of Consumption we try to analyze the behaviour of the consumer.
For the purpose of consumption, there is a need for production. In the Theory of Production we try to analyze the behaviour of the producer. We try to find out how the producer will allocate his resources so as to get the maximum profit out of his production.
For the purpose of production, we must take the help of the factors of production. There are four factors of production, such as land, labour, capital and organization. When we try to study the distribution of the national income among the factors of production, it is called distribution in Economics.
In the Theory of Distribution, we try to analyze the principle of distribution of national income. In course of time man has specialized in different economic activities. Because of this specialization, the exchange system has developed in the society.
In the Theory of Exchange we study the different problems of exchange.

With the development of state, state is helping man in the satisfaction of economic wants. A branch of Economics deals only with the income and expenditure of the state. This is known as Public Finance.

In the Theory of Public Finance we try to analyze the different sources of income of the government. We also try to analyze how the government spends its income. Thus according to the traditional approach the subject matter of economics can be divided into five parts.

1. Consumption
2. Production
3. Distribution
4. Exchange
5. Public Finance

2. Modern Approach: according to modern approach of economics the subject matter of Economics can be divided into

a) Micro Economics b) Macro Economics

a) When we study the problem of Economics from a particular point of view, such as one individual consumer, one firm, the price of one commodity, that is known as Micro Economics.

b) When we study the problem as a whole, all consumers, all commodities and all producers, it is known as Macro Economics.

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