Different Branches of Economics

Economy is an integral part of the general awareness section hence one should cover the entire syllabus of the economy before going for exams. In this article, we are going to discuss one of the important topics in economics i.e The different branches of economics. This is a very basic topic and students need to understand each branch so that they will be able to solve the questions easily.

Economics is related to the studies of the production, distribution, and consumption of goods and services.

The Different Branches of Economics:

Economics is broadly divided into 2 categories: Microeconomics and Macroeconomics.

1. Microeconomics

• It studies how individual consumers and businesses make decisions about allocating resources. Economists, whether individuals, households, or businesses, can analyze how these entities respond to price changes and why they charge for behavior at particular price levels.  
   
• Furthermore, microeconomics deals with how firms are organized and how individuals experience uncertainty and risk in decision-making, within the framework of supply and demand dynamics, the costs of producing goods and services, and the division and allocation of labor.

Different sub-categories are:

(a) Neoclassical economics

Neoclassical economics builds on the foundations of market-oriented classical economics. It included new ideas such as maximizing utility, Rational choice theory, and Edge analysis i.e how individuals make decisions at the edge – choosing the best option considering marginal costs and benefits.

(b) Environmental Economics

• This will increase your concern for the environment. This includes a Neoclassical analysis of external costs and external benefits. From this point of view, it is reasonable for humans to reduce pollution, Market failure – the tragedy of commons, public goods, external costs, and external benefits.
   
• Environmental economics can take a more radical approach and question whether economic growth is desirable.

(c) Behavioral economics

It examines the psychology behind economic decision-making and economic activity. Behavioral economics examines the limits of assuming that individuals are perfectly rational. including:

• Bounded rationality – people make decisions based on rules of thumb.
   
• Irrational Frenzy – People go crazy for asset bubbles.
   
• Nudge/Selection Architecture – How Decisions Affect Outcomes.

(d) Development economics

It deals with the problems of poverty and underdevelopment in the world’s poorest countries. Development economics deals with both micro and macro aspects of economic development. The main problems are:

• Trade versus Aid.
   
• Increased capital investment.
   
• The best way to promote economic development.
   
• Third world debt.

(e) Econometrics

Use data to find simple relationships. Econometrics uses statistical methods, regression models, and data to predict the outcome of economic policy.

(f) Labor economics

Its focuses on wages, industrial relations, and the labor market. Labor economics begins with the neoclassical assumptions of labor supply and the marginal income production of labor. Recent developments in labor economics focus on non-monetary factors such as motivation, well-being, and labor market scarcity.

2. Macroeconomics

It is the branch of economics that studies the behavior and performance of the economy as a whole unit. Its main focus is on repeating economic cycles and broader economic growth and development. It also focuses on foreign trade, government fiscal and monetary policies, unemployment, inflation, interest rates, gross output growth, economic expansions, booms, recessions, and business cycles leading to recessions. 

Different sub-categories are:

(a) Classical economics

Classical economics is often considered the foundation of modern economics. Developed by Adam Smith, David Ricardo, and Jean-Baptiste Say.
Based on:

• Operating a flea market. How the invisible hand and market mechanisms enable efficient resource allocation.
   
• Classical economics suggests that the economy generally works most efficiently when government intervention is minimal and concerned with protecting private property, promoting free trade, and limiting government spending. doing.  
   
• Classical economics recognizes that governments need to provide public goods such as defense, law and order, and education.

(b) Keynesian economics

Keynesian economics developed in the 1930s against the backdrop of the Great Depression. The legitimacy of the existing economy was at a loss to explain the ongoing economic depression and mass unemployment. Keynes suggested that the market was not cleared for many reasons (paradox of thrift, negative multipliers, low confidence, etc.).
Keynes, therefore, advocated government intervention to stimulate the economy. Keynes argued that the economy as a whole could function very differently than individual markets, requiring different rules and policies.

(c) Monetarist economics

Monetarism was part of the reaction to the dominance of post-war Keynesian economics. Monetarists, led by Milton Friedman, argued that Keynesian fiscal policy was far less effective than Keynesians had suggested. Monetarists promoted early classical ideals, such as the belief in market efficiency. They also emphasized controlling the money supply as a means of controlling inflation. 

(d) Austrian economics

This is another economic school that criticizes government intervention and price controls. It’s mainly a flea market.

(e) Marxist economics

It highlights the unequal and precarious nature of capitalism. It calls for a radically different approach to a fundamental economic problem. It advocated government intervention in resource ownership, planning, and allocation instead of relying on the free market.